Shooter Monday: AA
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I read an article this weekend that went on for about 28 paragraphs, describing why the stock market, if not certain stocks, were not good investments at the least, and at the worst, disasters in the making (see: http://finance.yahoo.com/news/wall-street-week-ahead-big-092608212.html ). Early to show up on this list of warnings of presumably what not to own is our lead-off batter for the third quarter earnings season-- Alcoa.
Alcoa (AA) shockingly (not) is expected to report $0.01 per share in earnings. So, let me state early in this trade set up that earnings for AA will not be pretty. However, these earnings should also not be a shock for most of us as AA has spent the past few years discounting what at times one could have thought was its very existence.
Many have been the trade set ups when I got long calls, literally in very short time, as those awful earnings were about to be announced. Some of those trades became nicely rewarded as the long positions were almost instantly rewarded thanks to bullish traders and investors who use the awful earnings announcement as the time to get long the stock. The reason behind this stock market anomaly is that sometimes awful earnings performances are the climax to a long-term bear cycle as poor earnings performances end and better earnings are then expected to soon follow.
Technically I have AA coiling, an interesting pattern to be forming just as awful earnings are about to be reported. Ina ddition, AA's one-year slow stochastic and RSI (relative strength index) have turned up. This is a combination of technical indicators that offer speculative potential for a bullish shooter, especially given the fact that AA's earnings will be made public after tomorrow's 4pm close.
Fundamentally, Alcoa should be at or near the trough of its long-term earnings cycle. Perhaps this long-term downward cycle will indeed end with this upcoming report. Should that be the case AA has plenty of upside room to recapture, attempting to do so with both technicals and fundamentals as bullish support.
This is a shooter trade and is thus has very high risk as well a high reward potential.
Trade: Buy to open 3 AA April 9 calls for $0.85.
As always, I will monitor the trade on this site in the comments section below.
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