Thursday, July 9, 2015

[AA] update

Backlink.

My first post ever on Alcoa aluminum was made in June of 2013.  My model was flashing a bottoming signal at the price back then of $7.86 based primarily on the wave count below.  Turns out that the exact low was $7.63 but hey, nobody's perfect.



I followed that initial post up with several others, all of which continued to predict higher prices including this not very subtle gem from October of 2013.   In fact I wrote, "My 18 month target price for Alcoa is $18.  Yes, I said it, perennial loser Alcoa gets an initial price target of more than double its current price within 18 months.  I should call it the Alcoa 18 in 18 deal. If your mom doesn't know where to park a nice chunk of her retirement, tell her to go for Alcoa and pick up the 1.4% dividend yield."

I was bullish on it the entire time and by November of 2014 it actually peaked at $17.75 just 25 cents short of my target price.  To be fair, some of the pullbacks I modeled occurred but at smaller magnitude than I expected as you can see in posts like this one.  But that was clearly intended not as a bearish call but rather as an opportunity to let the pause that refreshes occur with the reader on the sidelines only to jump back in when the buy signal got flashed.

In January of 2015 I posted that it was getting near 5 of C, probably in a 4th wave HT and perhaps had another wave up before peaking and reversing.  That did not materialize but the model was quite clear that a breakdown of the lower rail would be the sell signal.  I wrote, "As long as it stays above the lower rail it should be golden....Unfortunately, it doesn't currently look good after that.  This whole move counts like a giant a-b-c which is where I got that $18 price target in the first place - it was the level of the prior 4th.  When I see 3 waves that will count out right into the level of a prior 4th then I get muy nervioso.  But the 5th wave is not in yet so unless it breaks down that lower rail right now, AA holders should do OK as long as they sell after 5 waves up are complete.  When the selling starts, and I mean the entire stock market all at the same time, it will likely get fast and furious in a hurry.  Of course other counts are possible so there is no reason getting too worked up until we get more data.  All the gambler needs to know is that the odds are very good that the blue path will be taken above before we need to worry about anything else.



Shortly after that, the lower rail broken down and, as expected, it began to look ugly after that as you can see from the current snapshot below.  While I expected all of the markets to capitulate at once, I am fully aware that all of the individual wave move in their frequency like waves of water on the ocean.

Since the lower rail breakdown we have had 5 rail bumps on a falling wedge with 5th wave throw under.  The pullback is likely ready to reverse back upwards at this point and I expect a strong commodity rally to ensue.  The question is, will this be just 3 waves up to about $14-$14.40 (red model) or will it look more like the blue model where commodities begin to take off big time.  Right now I'm feeling quite red about it which is in line with my original thinking that the rally would be a C wave (i.e. corrective).  The key will be to see what form the rally takes.  Will it be a-b-c or 1-2-3-4-5 (corrective or motive)?  That's what we need to focus on.  Again, for now and until I get data to the contrary, color me red on this.

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