NEW YORK (TheStreet) -- Alcoa (AA) - Get Alcoa Corp. Report stock closed Friday as the top gainer in the S&P 500. The stock finished 6.2% higher on its strongest positive trade since May 1. This impressive move extended Alcoa's powerful upside reversal off Monday's low to over 17%.
The devastating bear trend that has been in place since early May is now showing signs of exhaustion. For Alcoa investors, a much-needed relief rally may be just beginning.
Shortly after Alcoa bolted more than 5% on May 1, the stock entered an ugly bear trend. By the end of the month, Alcoa was at new 2015 lows as a string of four straight lower monthly lows began. At last week's low, the stock had fallen over 40% from its May 1 high and was well below its 2014 low of $9.82. This relentless four-month selloff pushed the stock to its deepest weekly moving average convergence/divergence oversold reading since the 2011 bottom.
Alcoa's high-volume rebound from a deeply oversold setup should be viewed as a very positive sign for investors. If Alcoa can maintain the bulk of last week's gains this week, more upside is likely ahead.
Alcoa has multiple layers of heavy overhead resistance to work through as a recovery move develops. The first challenge will be the July low at $9.59. Once past this level, a retest of the stock's 40-week moving average, currently at $11.05, would be within striking distance. A rally up to the 40-week would retrace 50% of the post-May 1 collapse.
As this rebound plays out, Alcoa bulls should consider the $8.70-to-$8.30 area as a low-risk buy zone. A close back below $7.50 would take out the 2013 lows and put a late August bottom in serious doubt.
At the time of publication, author was long Alcoa.