On April 27, 2016 I lamented that I managed to miss the next post-earnings buying point for Alcoa (AA). A second chance has appeared in the form of a retest of support at AA’s 50-day moving average (DMA).
Source: FreeStockCharts.com
AA broke out in late April, but the gains all came in a single one-day burst. The entire breakout reversed quickly. The good news on the pullback is that volume declined throughout the selling. This moderating volume implies sellers are less and less inclined to dump AA which means buyers may more easily take control at this 50DMA support.
Since my trading call recently switched to “cautiously bearish”, I hesitate to jump right into this buying opportunity. So, I will wait for a confirmation of support, like a solid up day with a close above 50DMA support. AA drops into bearish territory if it breaks down below support at its 200DMA. Such a move would completely reverse all post-earnings gains. (Note that the market’s initial reaction to earnings was negative, featuring a small gap down).
Be careful out there!
Full disclosure: no positions
Follow-up, May 9: the commodity complex got hit again and took AA with it. At the time of writing AA is at $9.53. The trade actually get a little easier now. IF AA closes above its 50DMA again, I buy immediately. I next watch for a successful test of 200DMA support.