Aluminum caught my attention. Not the metal, but the sector.
Aluminum Corp of China (ACH), has formed a well-defined rising channel:
Century Aluminum (CENX) has rising lows in the Stochastics indicator, often an sign a stock is strengthening. The Up/Down Volume Ratio indicator is currently 1.5. A ratio of the volume on up-close days divided by the volume on down-close days, an U/D ratio value above 1.0 indicates net buying, and a value > 1.3 often appears when there is institutional accumulation.
A linear regression line drawn since the mid-June lows confirms the average price of the stock is steadily increasing. The regression line has increased 8.8% over the past 107 days. If thought of as the average price of the stock, then the average price has increased at an annualized rate of 30%. Not bad for a stock in a sector that has been abandoned by investors.
But the stock that initially caught my attention was Alcoa (AA), traditionally the lead-off to each earnings season. Back on October 8th, Alcoa beat earnings expectations of $0.06 by $0.05. However, the revenue was down slightly and guidance weak. The market responded by pounding the stock down 7.3%.
Since then, AA has been rebounding with volume on up-close days overwhelming volume on down-close days. When Fibonacci retracements are overlaid onto the most recent advance in AA’s stock, we see that AA retreated right to the 50% level before rebounding, typically a sign of a moderately strong stock.
Like CENX, AA has been setting higher lows on the Stochastics:
Going to finance.yahoo.com and checking the EDGAR reports of insider buying, I see two Directors of the company regularly buying shares every quarter. Even though stock options are used as compensation at Alcoa, meaning most stock acquisitions by insiders are quickly sold, at least two directors are just purchasing and holding AA stock:
There are 30 trading days before Alcoa again reports earnings. Over the past 10 years, AA’s track record of movement over the 30 trading days before the January earnings announcement has been:
2 losses, but 5 gains of 9% or more. This is not the high probability type of trade I normally look for. But I will occasionally take a chance on a lower-priced stock showing a good technical setup, and in a sector where peer stocks are showing increasing strength. In cases like this, I do a small trade, and use stop-losses in the 8-10% range (with AA currently at 9.24, a 10% stop-loss would work out to 8.31, which is a bit below the 50-day moving average that should provide support). This type of trade is only for risk-taking contrarian traders, who like to take a chance on an ignored stock that may be starting to move.
Of course, there’s much more you need to know and many more stocks you can capitalize upon each and every day. To find out more, type in www.markettamer.com/seasonal-forecaster
Copyright (C) 2013 Stock & Options Training LLC
Unless indicated otherwise, at the time of this writing, the author has no positions in any of the above-mentioned securities.
Gregg Harris is the Chief Technical Strategist at MarketTamer.com with extensive experience in the financial sector.
Gregg started out as an Engineer and brings a rigorous thinking to his financial research. Gregg’s passion for finance resulted in the creation of a real-time quote system and his work has been featured nationally in publications, such as the Investment Guide magazine.
As an avid researcher, Gregg concentrates on leveraging what institutional and big money players are doing to move the market and create seasonal trend patterns. Using custom research tools, Gregg identifies stocks that are optimal for stock and options traders to exploit these trends and find the tailwinds that can propel stocks to levels that are hidden to the average trader.
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