Alcoa may be ready for a breather. [AA]

Backlink.


I think Alcoa will be at $18 in 18 months but I also think that it's rise to today's price of $10.14 from its July 2013 low of $7.63 is a remarkable 33% in just 6 months.  I went bullish on Alcoa based on its EW chart on 6-27-2013 back in this post.  I was premature on that call by exactly 4 trading days and 9 cents.




But today the chart meets the criteria of 5 waves up as modeled below.  While there are no guarantees that a pullback will happen as modeled, it is good to start setting up trigger points.  The first trigger point would be a break below the prior 3rd wave high at about $9.95.  The next trigger would be a break below the green trend line as shown.  Then if you see the back test from below and it can't break back up through then that will be a pretty clear signal to bail IMO.

Of course, this is only for short term traders.  I think you can probably just hold this until it reaches $18 without too much sweat given its low valuations and its recent financial improvement and the fact that all the car bodies are going to use more and more aluminum going forward in order to save weight.  It will be VERY hard for them to back track to heavier steel once the transition is made.  Who will buy next year's model if the gas mileage goes down from this year's?  Again, once they go aluminum there is really no turning back.  It becomes the expectation rather than something new or novel. This is going to be an overwhelming tail wind for Alcoa.

But I do want to reiterate that the real reason for my bullishness is not the so called fundamentals.  Fundamentals are in the eye of the beholder.  For example, here is a somewhat more negative take on Alcoa's outlook.  If you only read their analysis you might conclude that their low profit margin and their Chinese competition make Alcoa a weak play to the long side.  You might conclude that Wikivest is more established and probably smarter and better staffed for this analysis work than a part time chartist like me.  And in fact you might be right on all of those fronts.  But nowhere in that link do you read the words "government", "inflation" or "protectionism" and I think those forces are stronger for a single player like Alcoa than all of the things in the Wikivest article.

Also, the belief that current stock price mainly has to do with company performance or even current company true valuation is not really supported by the facts.  Company share prices are often like elections: popularity contests in which many of the voters don't even know the issues at play.  That is why I think the chart should really be the final arbiter in a decision to buy or sell shares.  I think that the recent action on BBRY which I have been reporting on of late is a great example of this.  I liked the shares at $6.10 mainly because of the chart action.  The company valuation had been too low for quite some time but I said nothing positive until the chart suggested a wave count that had some odds going for it.