Trade of the Day: Alcoa Inc (NYSE:AA)

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My indicators are giving bullish readings once again, and the market is now in a five-day period — the last three trading days of the month and the first two trading days of the next month — that usually has a strong bullish bias.

But, on the other hand, the old adage “sell in May and go away” is very relevant and in the back of my mind as we get ready to close out the month of April. I would take heed of that because I believe the odds are that the market will eventually begin to move lower starting in May and through the months ahead.

Still, I think there’s a very, very short-term window to get some quick bullish profits, so I have a call option recommendation for you today in Alcoa Inc (NYSE:AA).

Buy to open the Alcoa (AA) Jun 11 Calls (AA160617C00011000) at $0.73 or lower.

After entry, take profits if Alcoa shares hit $12.20 or the option price hits $1.50. Exit if Alcoa  closes below $10.40.

But, again, be quick about taking profits if you have them, because the backdrop for this market is darkening. On the economic front, the most recent GDP report showed that the U.S. economy grew at only a 0.5% annual rate during the first quarter, and that’s not a good sign. Exports slid 2.6%, while imports rose 0.2%, so that didn’t help either.

And even though the economy is expected to ramp up to a 2.6% growth rate in the second quarter, you really have to take that outlook with a grain of salt because it’s typically the fastest-growing quarter of the year, so a temporary bump in economic performance is likely baked into the cake. It goes back to my prediction of a recession, and it surely looks like the U.S. is sliding into one.

Despite all of this, the market continues to climb the “wall of worry.” The S&P 500 Volatility Index (VIX) is still quite low at this time, and that just tells us that we can’t expect any kind of a crash right now. The VIX is just not pointing to any kind of decline, but, like I said, this indicator is likely going to start turning higher at some point.

Earnings have been up and down across the board this quarter. Facebook Inc (NASDAQ:FBdid very well, but some of the other big-name companies out there have disappointed. In many cases, companies had issued lower earnings guidance, and that’s exactly what the market got. Reported data so far have hit a few stocks, like Apple Inc (NASDAQ:AAPLpretty hard. It should go without saying that lower revenue and lower profits are big turnoffs for investors.

Looking overseas, while I’m not a big proponent of the European banks, names like Deutsche Bank AG (USA (NYSE:DB) have been holding steady. Just the other day, the stock was up 4% on relatively good earnings. I’m also keeping an eye on China and the potential bubbles in the Asian markets. Naturally, I’m cautious about any investment opportunities that involve Chinese stocks.

With regards to commodities, gold is probably stronger than it should be at the moment, and crude oil is doing its best to keep investors on their toes. In my estimation, a move down in oil is likely to coincide with a summer equity-market pullback, as there is still is a huge amount of oil out there pressuring prices. I’m leaning bearish over the short term, but I may transition to a more bullish stance over the longer term once a bottom has been firmly defined.

InvestorPlace advisor Ken Trester brings you Power Options Weekly, which delivers 5 new options trades and his latest trading advice to you each Friday. It’s the perfect ‘bridge’ between investing in ordinary stocks and the turbocharged world of options trading.

Trester has been trading options since the first exchanges opened in 1973 with a winning streak that goes back to 1984 with money-doubling average annual profits since 1990. To receive further updates on this trade as well as an alert when it’s time to take profitstry Power Options Weekly today and receive 4 weeks for the price of 1 for only $19.95.


Article printed from InvestorPlace Media, https://investorplace.com/2016/04/trade-of-the-day-alcoa-inc-nyseaa/.

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