Todays Big Stock: Alcoa Inc. (NYSE: AA)

Well, it’s that time again: Earnings season. Earnings season is always a great time for trading. Volatility on the underlying stock tends to pick up when a company comes out with its quarterly earnings report. Breakouts and breakdowns occur. New trends begin, and old ones end. Yes, this can be a great time for trading. And as always, who kicks off earning season? Alcoa.

Below is a 1 yr. chart of AA (Alcoa, Inc.) with several of my added notations. Please review the chart:

AA had been in a very nice trend higher from August 2010 up until April of this year. After releasing their earnings in April, AA started a trend lower that has now lasted 3 months. AA’s current streak of lower highs and lower lows is still intact, but AA recently took the first step towards ending its downtrend: A break back above the key level of $16. So, with Alcoa set to release their earnings report after the bell today, can AA continue taking steps toward a new trend higher? Or, will Alcoa have another ill received earnings report such as in April and break lower again?

The Tale of the Tape: Earnings season begins today, starting as usual with AA (Alcoa, Inc.), which releases its report after the bell today. Although AA has been in a 3-month downtrend, the stock recently broke back above its key level of $16. If AA were to break back below $16, AA would most likely renew its trend lower and a trader would want to look to enter a short position. However, if AA were to hold $16, and then form a higher high above $17, AA will have broken its trend lower and a long position could be entered. This long position could be entered at the $16 support or upon starting the uptrend above $17.

Waiting for the most opportune times that I have outlined above could provide you with higher probability entry points. No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade.

Good luck!

Christian Tharp, CMT