Shares of aluminum manufacturer Alcoa Corp (NYSE:AA) last week rallied about 9%, bringing its year-to-date rally to almost 47%. While this has already been a marketable move for AA stock, in the bigger picture, the stock may just be starting off a more meaningful leg higher.
Regular readers of this here daily column know the importance I put on multi-time-frame analysis to gain proper perspective on stocks, indices and other asset classes.
One of the primary mistakes many market participants do is to treat all time frames as equal. For example, trader xyz is bullish on a stock and this view is staunch in the immediate, intermediate and longer-term.
Empirically, stocks can be bullish and bearish in multiple time frames at the same time. The highest-probability setups in my eye take place when as many of these time frames give us the same directional trends (bullish or bearish).
AA Stock Charts
Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
On the multiyear weekly chart of AA stock, we see that since about early 2015, it has traded in a fairly wide but well-defined trading range. The price action year-to-date and in recent months has been promising in that it has consolidated the stock below the upper end of the longer-standing range.
Last week’s rally finally led to a marginal breakout of this range as the stock pushed and held above the $40 area on a weekly closing basis. While it is too early to scream victory for the bulls, note that in June AA stock bounced off its yellow 50-week simple moving average, which now offers well-defined support and is curling higher along with the 100- and 200-week moving averages.
Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day
Moving over to the daily chart, we see that last week’s move also pushed AA stock out of a tight bull flag pattern (black parallels) as well as past previous horizontal resistance from the February and early-August highs.
All of this started to gain upside momentum as AA stock completed a strong bullish reversal on Aug. 21 and 22.
Bullish and bearish reversals are an integral part of profitably navigating the stock market and for those unfamiliar with these strong bullish reversals, I will be holding a special webinar Aug. 30 for InvestorPlace readers on how to find high probability trade setups using these powerful moves. Register HERE.
While AA stock may be somewhat immediate term overbought at this juncture, the stock does look poised to move higher into the mid to high $40s over the ensuing months. Any strong one-day or one-week bearish reversal would be a stop loss signal.
Check out Serge’s Daily Market Outlook for Aug. 28.
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