Chart of the day: Alcoa shares indicating the global economic slowdown

Alcoa (NYSE 🙂 will today report operating results for Q1 2019, after market closure. Analysts expect & # 39; the world's eighth largest aluminum producer to show an EPS of – $ 0.12 on sales of $ 2.82 billion.

So far, the Pittsburgh-based miner and producer has reported EPS expectations for four consecutive quarters and sales for the past three quarters. For the same period, Alcoa came in at $ 0.77 EPS instead of the expected $ 0.68, with sales of $ 3.09 billion versus the consensus estimate of $ 3.1 billion.

However, the situation may be very different later on, given the gloomy performance of the company this year. Alcoa's shares have fallen by 2.14% since the start of the year compared to the 15.96% jump over the same period. Although we remain bearish with regard to the main index, we think things look even grimier for Alcoa, based on how the primary product is traded.

Note the sideways movement for the commodity since the beginning of the year, following a fall since April last year. And why does aluminum fall so drastically? Possibly because it is a leading indicator for a global economic slowdown.

Now compare that with the share prices of Alcoa.

Alcoa Daily

Note the similar movements.

Although most traders have a transient knowledge of an H&S reversal, in this graph we are actually looking at a continuity pattern of the H&S, something that is much rarer. While a reversal H & S is the visual representation of a slowing trend that is increasing toward its origin, the continuation pattern shows an attempt – but the ultimate failure – of a reversal, and a continuation of the near-earlier trend.

The price bounced in January from the lowest point in December, making it a supposed bottom. That was followed by a low value higher than that in January, indicating the potential first half of a rising line, a hopeful first-of-two rising peaks and troughs.

The peak in February beat the peak of January and pushed aggressive bulls to increase their position. However, something happened that was not allowed to have.

In March, the price plunged under the February trough, in the absence of the minimal formation of an upward trend, in which technically oriented bulls were disappointed. If that wasn't enough, the low point of April dropped below the low point of February, closing this trade assortment as trendless. At the same time, the price fell above 100 DMA and fell below 50 DMA.

Would it be time for bulls to start watering holdings? Note that both the MACD and the RSI give a unanimous impression that this is probably the case.

A downward breakthrough in the neckline, connecting the lows during congestion, for $ 26.51, would show that all demand has been included and sellers are willing to lower their offer prices to find more willing buyers.

Another warning: the low of December 24 was $ 25.08, the lowest level since Nov. 2016, before Trump's election victory pushed the market to another rally within the bull market. This was just on top of the $ 25 round psychological level. This level can prove to be a support.

Trading Strategies – Short Position Setting

Conservative traders have to wait for the price to clear the $ 25 levels.

Moderate traders have to wait for a negative breakout, with a filter of at least 2% below $ 25.95, to reduce the chance of a bear fall. Then wait for a return for better access, but not necessarily as proof of trend.

Aggressive traders can now enter a deficit, expecting Alcoa & # 39; s profit to reflect the shrinking demand seen in the underlying commodity, amid a potential economic contraction. From a technical point of view, the price has fallen under the upward trend since 8 March.

Trade sample

Admission: $ 28
Stop-Loss: $ 30, round psychological number, for the resistance of the right shoulder
Risk: $ 2
Target: $ 22
Reward: $ 8
Risk-Reward Ratio: 1: 3

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.