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Alcan Aluminium Making A Move

11/30/05 07:40:52 AM
by Gary Grosschadl

The stock of Alcan, the world's second-largest producer of primary aluminum, may be entering a bullish phase.

Security:   AL.TO
Position:   N/A

Figure 1, the daily chart of Alcan Aluminium, shows a long bottoming phase that has finally moved above a major line of resistance. Note how the ever-important 200-day exponential moving average (EMA) has acted as a natural trendline since January 2005. After a period of consolidation around the 200-day EMA, the stock has thrusted upward.

The bottom pattern is interesting. It takes the form of two successive cup-with-handle patterns. The first breakout attempt ended with failure at formidable overhead resistance offered by the 200-day EMA. Now, three months later, a second attempt has evolved with apparent success. Ideal breakouts come with exceptional volume, but that is lacking here. Nevertheless, the price pattern so far is a success.

FIGURE 1: ALCAN, DAILY. This chart shows an interesting bottoming pattern that may have the stock heading upward.
Graphic provided by:
The displayed indicators also reflect a strong move above the 200-day EMA. At the top of the chart, once the average directional movement index (ADX) moved above the 20-25 region, a very strong trend was in place. Meanwhile, the moving average convergence/divergence (MACD) reflected its own bullish charge as it moved above its O line and then past the previous peak from last August. The stochastics oscillator also showed extreme bullishness as this indicator remained high. In strong trending markets, this oscillator has the capacity to stay in overbought territory for an extended time, as this graph shows.

As we look ahead, there are several areas of concern on the chart when it comes to likely overhead resistance -- specifically, $48 and 50.50, marking previous rally highs and then likely heavy resistance at a previous congestion zone ~ $52. Consolidation or reversal at those areas is a possibility. A bigger move may still evolve, but a retest of the breakout zone back at the 200-day EMA should not be ruled out either. All things considered, however, the bottom should be in.

Gary Grosschadl

Independent Canadian equities trader and technical analyst based in Peterborough
Ontario, Canada.

E-mail address:

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