Dueling Wedges For Alcoa

10/25/07 08:58:00 AM

by Arthur Hill

Alcoa formed two competing wedges in two different time frames, and these should be watched for the next signal.

Security: AA
Position: Hold

The first time frame covers the daily chart and what I would call the medium-term trend (Figure 1). After a sharp decline in July–August, Alcoa formed a rising wedge and retraced around 50% of this advance. Both the pattern and the retracement are typical for bear market rallies. Trading turned flat over the last four weeks, and the stock could be consolidating before its next move.

FIGURE 1: ALCOA, DAILY. After a sharp decline in July and August, AA formed a rising wedge and retraced around 50% of this advance.

Graphic provided by: TeleChart2007.

The stock broke the lower trendline over the last few days but managed to firm and find support around 37. Support in this area stems from the 50-day moving average, the 200-day moving average, and the October lows. I am marking key support at 36, and a break below this level would fully reverse the medium-term uptrend and call for a test of the August low. The bulls get the benefit of the doubt as long as the support area holds.

FIGURE 2: ALCOA, HOURLY. AA surged in September and then formed a falling wedge over the last few weeks.

Graphic provided by: TeleChart2007.

Because the trend has yet to reverse, traders can still consider potential bullish trades. Figure 2 shows 60-minute bars and what I would call the short-term trend. Alcoa surged in September and then formed a falling wedge over the last few weeks. The stock broke above the upper wedge trendline but has yet to exceed the prior reaction high (red resistance line). A break above this level would be short-term bullish and argue for higher prices.

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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Dueling Wedges For Alcoa

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