As the broader stock market rallied for a fifth day on Monday, it received a further boost from metals and mining stocks such as Alcoa Inc (NYSE:AA). Some of the biggest year-to-date laggards saw some of the largest rallies in recent days, and some of those parts of the market now look to have developed a better medium-term bottom.
Active investors could look to leg into AA stock for a further lift in the fourth quarter, but should be mindful of the upcoming earnings report on Thursday, Oct. 8.
Several factors led to the rally in some of the bigger metal and mining stocks on Monday. For Alcoa itself, news broke that it won a $1 billion parts-supplying contract with aircraft manufacturer Airbus. Furthermore AA stock was reiterated as a buy by Deutsche Bank but with a lowered price target of $14. Still, even this lowered price target implies that Deutsche Bank sees more than 30% of upside in AA stock for the time being.
Over the summer, I pointed out in this column that the precipitous decline in AA stock particularly in the May through July period was unsustainable at this rate and that at the very least a better bounce would ultimately need to ensue. This bounce began to materialize and build a better-looking base as a result of the broader market flush-out in August.
Alcoa Stock Charts
Looking at the multiyear weekly chart that stretches back to the year 2009, we see that contrary to what some people believe about Alcoa stock, it tends to see big swings that last anywhere from six to 12 months. The most recent swing lower that began in November of last year was about 10 months old in August when AA stock bumped into its black support line from 2009.
In other words, not only did AA stock reach an important area of technical support in August, but also from a duration perspective, the downtrend reached an important mark.
On the daily chart, we then see that the steady trickle lower that occurred throughout the summer months finally led to a waterfall moment in the second half of August followed by a V-shaped reversal. More importantly still, AA stock in late September formed a higher low that with Monday’s 9.35% rally was confirmed.
Also note that volume began to increase off the August lows and that Monday’s rally broke the stock past horizontal resistance as well as confirmed the break past the down-trend line from early 2015.
From here, considering Alcoa is due to report earnings on Thursday the stock may need to settle somewhat but barring a disastrous earnings report and forecast the price action since late-August looks to have established a solid medium-term low. Active investors could look to initiate a small partial long position here and add to it on pullbacks, as long as the $9 area holds as support
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Successful trading and investing starts with a plan. Download Serge’s essential trading plan, The Essence of Swing Trading e-book. As of this writing, he did not hold a position in any of the aforementioned securities.
