Technical Numbers Don’t Tell the Full Story For AA Stock

When you think about overlooked lessons that new investors learn in the stock market, one in particular comes to mind — for every hard-and-fast rule that technical investors use to evaluate the best stocks to buy, there’s always an exception or two.


Source: Daniel J. Macy /

That brings us to struggling U.S. aluminum producer Alcoa (NYSE: AA) which, according to a key technical indicator, hit oversold territory in 2020 and could be ripe for a rebound.

But not so fast, folks.

Instead, Alcoa stock is a great example of what can happen when an investor relies too much on technical analysis. Indeed, you ought to stay far away from AA stock for the foreseeable future.

AA Stock by the Numbers

Alcoa is the world’s eighth-largest aluminum producer, making both primary aluminum and fabricated aluminum. The stock is trading around $13.50, down a whopping 37% year-to-date. That’s part of a long-term drop, too — AA stock lost more than half its value in the last 12 months, and more than 74% from April 2018 prices.

But investors really started fleeing in earnest after AA reported horrendous fourth-quarter and full-year earnings on January 15. The company said it lost $0.31 per share, 10 cents more than analysts anticipated.

That brings us to an interesting technical indicator — the Relative Strength Index, or RSI. On this 1-to-100 scale, any reading of 30 or less means that the stock is oversold and is due for a bounce off support. Currently, AA stands at 29.8, as seen on the top line of this chart.

Source: Chart courtesy of

So does that mean that you should go buy AA now? My Portfolio Grader says no, as AA holds an F-rating, making it a “Strong Sell” right now.

There’s Little Left to Like About AA Stock

It hasn’t been that long since Alcoa was a major player on Wall Street. By being one of the first companies to report each quarter, Alcoa was a bellwether to the economy in general. If its manufacturing engine was running in high gear, then investors had more confidence in other companies and began expecting a rosy quarter.

But as the economy began moving away from the manufacturing base, Alcoa lost prestige and stock price. The company was replaced in 2013 on the Dow Jones Industrial Average. Then, in 2016, the company spun the more profitable parts of the business — lightweight metals used in aerospace, automotive and consumer electronics, among others — to a new company, Arconic (NYSE: ARNC).

Not coincidentally, ARNC stock is up 67% in the last 12 months, and was up 10% year-to-date before the market fell on COVID-19 coronavirus fears.

Arconic has a market cap of $13.3 billion and has a bullish outlook, while Alcoa is stuck with an ever-shrinking market cap of $2.5 billion, which is way too small in an aluminum market dominated by China and Chinese companies. China produces more than half of the world’s aluminum, while the U.S. and Canada produces only 330 million tons — less than all of east and central Europe or the Middle East.

There’s nothing to indicate that AA stock is ready for a bounce — despite what the RSI indicator says. Investors should use technical tools to help them evaluate stocks, but be careful not to follow them blindly into the poor house.

Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.

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