Alcoa Inc. engages in engineering and manufacturing lightweight metals worldwide. The company operates through five segments: Alumina, Primary Metals, Global Rolled Products, Engineered Products and Solutions, and Transport and Construction Solutions.
Take a look at the 1-year chart of Alcoa (NYSE: AA) below with my added notations:
Over the past 4 months AA has created a key level of support at $9 (green), which is also the “neckline” for the stock’s head and shoulders (H&S) reversal pattern. Above the neckline you will notice the H&S pattern itself (red). Confirmation of the H&S would occur if AA were to break the support, and lower prices would be expected from there.
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The Tale of the Tape: AA has formed a head & shoulders pattern. A long trade could be made at $55 with a stop placed below that level, but ideally, the pattern implies a short trade to be entered on a break below that level instead.
Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.
No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade. Capital preservation is always key!
Christian Tharp, CMT
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