|Alcoa (AA) is an aluminum company that is part of the basic materials sector and Dow Jones Industrial Average. As such, the outlook for AA reflects the long-term prospects for the overall stock market and economy.|
|On the monthly chart, AA formed a large double top with resistance at 44 and support at 23. The first top formed with a single bar and could be called an Adam top (see Thomas Bulkowski's article in the Jan-03 issue of S&C Magazine). The second top formed with two bars and could be referred to as an Eve top. Taken together, the pattern is an Adam-Eve double top. The support break confirmed the double top and the long-term projection is for a decline to around 12.|
|Figure 1: Monthly chart for AA.|
|Graphic provided by: MetaStock.|
|On the weekly chart, AA is trying to trace out a double bottom, but this pattern is far from complete. The first low would mark an Adam bottom and the second low an Eve bottom for an Adam-Eve double bottom. Before taking this pattern seriously, AA would need to break above key resistance at 26.5 on expanding volume.|
Figure 2: Weekly chart for AA.
RSI confirms a successful support test, but weak volume and relative strength are likely to stem any advance. RSI moved below 30 (oversold) and then formed a positive divergence (green arrow). The higher low reflects less selling pressure (downward momentum) than in October, but RSI has been largely below 50 for a year now and would need to exceed this level to turn momentum positive. AA made a strong two-week move off support in March, but volume was low and the advance stalled at the Apr-02 trendline. Moreover, the advance barely registered on the price relative (AA relative to SPX), which then moved to a new 52-week low last week and remains well below its 50-day EMA.
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