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CHART ANALYSIS


Alcoa Testing Major Trendline

04/16/03 09:58:46 AM
by Arthur Hill

A double bottom formation on the weekly chart for Alcoa Aluminum provides some hope. However, a large double top on the monthly chart doesn't share the same optimism.

Security:   AA
Position:   N/A

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.



Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

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