TBI's Thoughts [5]: Alcoa (NYSE: AA)... Is Aluminum the New Craze?
Hi everyone. Today, I’m covering one of the largest producers of aluminum in the world:
Alcoa Corporation (NYSE: AA)
The monthly chart shows AA with a series of equal highs around the 98-100 area, albeit with a series of long-term higher lows since 1972. This suggests long-term consolidation within a range that gradually gets tighter and tighter with time. The Stochastic made its first bullish crossover in several months following September’s large engulfing candle. Thus far, we have seen consolidation within last month’s range.
We can also see a shorter-term bullish megaphone pattern (higher highs, lower lows) that found support at the newly-confirmed 1972 trendline.
The weekly chart shows a breakout from the Mar’22 resistance trendline (in pink), and a support trendline dating back to Jun’20 (in green). The Stochastic favours bulls and is on the way back towards extreme overbought levels.
On the daily chart, we can see AA consolidating below a resistance trendline from earlier this year (Jun’24) before breaking out a few trading sessions ago. The daily Stochastic is coming down from overbought levels, and we can expect some short-term sideways churn, or controlled selling, above this resistance trendline.
However, the longer-term picture is clear, in that we are likely to see a push towards the next gap fill at 43.28-43.75. Subsequently, I am expecting us to push towards the 54.90 level, which has been a major resistance for the past few years. If we look further out, I am fully expecting us to head back to the 98-100 area over the next few years.
One thing worth noting - AA has significantly underperformed against SPY over a 10-year period. However, the technical setup on AA suggests that this divergence in performance could narrow with time. Thus, I am initiating coverage on AA with a BUY.
My long-term thesis will be invalidated if AA breaks its green Jun’20 support trendline, and also closes below the 29.91 bullish island gap. A false breakout and move back below the Jun’24 resistance trendline does not invalidate the long-term bullish thesis on this name.
Sentiment: BUY (New)
Invalidation: Close below 29.91 and/or breaking the Jun’20 support trendline
Summary (with Price Targets - NFA):
Broke out of Jun’24 resistance trendline and consolidating above it
Long-term measured move towards 54.90 and eventually the top of the range at the 98-100 area
Losing the Jun’24 resistance trendline is likely to see a move back towards the Jun’20 support trendline to form a higher low
Breakdown below Jun’20 support trendline will most likely cumulate in a move back to the 1972 trendline to form a higher low
$Alcoa(AA)$ $SPDR S&P 500 ETF Trust(SPY)$ $Invesco QQQ(QQQ)$ $iShares Russell 2000 ETF(IWM)$ $SPDR Dow Jones Industrial Average ETF Trust(DIA)$
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