Charting Alcoa Before Earnings

By Bryan McCormick

Sometimes we get very lucky heading into an earnings report. As we have seen over the last two years, we can get spectacular patterns, short-base skews, and a high divergence of expert opinions. All of those factors can contribute to producing very large surprises once earnings are announced, with spectacular price action.

In the case of Alcoa (AA), the stock that is traditionally seen kicking off earnings season, we are not going to be so lucky this time around as far as charts are concerned. Such is market reality, and we have to play the hand we are dealt.

Despite the relative paucity of patterns and signals, there are in fact two key pieces of information to take away from the aluminum company's chart. When the company reports on Monday, keep these in mind.

I should point out that I had to individually select a specific start date on the chart, rather than just use the default one or two-year views I typically would. A two-year view, for example, would collapse the two details I want to look at to nearly invisible, given the dramatic falling-off-a-cliff price action from September 2008 onward.

Part of that dramatic action is still captured here, but only a small portion of it. That is a testament to how far the discounting process took the stock, from the high $30s, down to the $5 area, in a relative handful of months. (Click to enlarge)

Given that, I want to draw attention to the red level line. This is at the $16.70 area, where the stock just barely managed to reach in recent days before falling back. That is key as that bearish gap in early October 2008, on the left of the chart, is still acting as major resistance more than a year later.

This gives us our first important clue. If the stock can take out this $16.70 area to the upside on a better news, whether by current earnings or guidance, it might run. The next big resistance level, note the long-range days on the far left of the chart, would be at the $19 area.

If the news is worse? The key value to follow in that event would be the green, sloping, uptrend line, and that line would be broken on a move below $16. In that case, the shares could fall back to the $15 area, near some recent price peaks prior to the recent upside breakout.

A fall below $15 might risk a longer-term move down to the $12.50 area, where there is decent support over several months, corresponding to price peaks in January and June 2009, and the lows of late November 2009. I have shown that with a green horizontal line.

(Chart data provided by Thomson Reuters)