Alcoa Stock Looks Ready to Break Out

Alcoa's chart now suggests a move strongly higher could be up next.
By Richard Saintvilus ,

Shares of Alcoa (AA) - Get Report , which haven't done much for the past two months, now look to be on the verge of a strong breakout.

With the company's strong second-quarter results now in hand, you don't want to be on the wrong side of what has been a profitable trade since April 8. And the chart now suggests a move to $11.30 per share, or 11% higher, could be imminent.

Fundamentally, Monday's solid earnings beat suggests that Alcoa, the largest aluminum producer in the U.S., is making the right decision splitting into two companies. It's a big deal. The underlying value in Alcoa's higher-margin business, Arconic, which will make aerospace and auto components, will be unlocked from its traditional business of mining bauxite and producing aluminum. The company will be better shielded from weak commodity prices.

From a technical perspective, Alcoa stock is back above all three moving averages (20-, 50-, and 100-day), affirming a positive upward trend. Take a look at the chart below, courtesy of TradingView.

Alcoa stock closed Monday at $10.14, up 3.26%. The shares have risen 6.8% over the past month, and 9% since I called Alcoa a high-risk, high-reward buy in April. This compares with a 4.56% rise in the S&P 500 (SPX) .

Over the past three months, Alcoa has established firm support at around $9.10 per share, while testing resistance at $10.15. You can see from the chart that the stock has experienced "contained volatility," bouncing between $9.10 and $10.15 (an 11% spread) on multiple occasions. This has created solid money-making opportunities, if you've been able to trade the spread.

But Alcoa stock could make higher highs and higher lows now.

If the stock finally breaks above $10.15, it could reach $10.50 to $10.80. At that point, the next target become $11.30 -- a level the stock has not seen since April. This would translate to a rise of about 11.5% from Monday's close.

With Alcoa expected to complete the business split later this year, its stock is poised to see a new 52-week high of $11.50 by year's end.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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