Technical Alarm Sounding Ahead of Alcoa Earnings

Alcoa will report earnings after next Wednesday's close

by Karee Venema

Published on Jan 11, 2019 at 12:34 PM

It's been a volatile stretch for Alcoa Corp (NYSE:AA) stock, per its 60-day historical volatility of 53.9%, which registers in the 97th annual percentile. The options market is expecting this wild price action to continue after the aluminum giant reports fourth-quarter earnings after the market closes next Wednesday, Jan. 16.

Specifically, Trade-Alert places Alcoa's implied earnings deviation at 9%, much higher than the 5.4% next-day move the stock has averaged over the last two years. Four of those earnings reactions were positive, and four negative, but just two -- a 13.3% plunge last July and a 9.5% pop in April 2017 -- were large enough to match or exceed what's being priced in this time around.

Options traders have been loading up on long calls ahead of the event. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), AA's 10-day call/put volume ratio of 17.81 ranks in the 98th annual percentile, meaning calls have been bought to open relative to puts at a faster-than-usual clip.

Drilling down, the February 30 call has seen the biggest increase in open interest over the last 10 days, with nearly 11,600 new positions initiated. Data points to mostly buy-to-open activity, too, as speculators eye a breakout above $30 by February options expiration.

This optimism is seen in the brokerage bunch, too, with nine of 11 analysts maintaining a "buy" or better rating, and not one "sell" on the books. Plus, the average 12-month price target sits all the way up at $49.93. And while J.P. Morgan Securities slashed its AA price target to $57 from $79 earlier today, this new target is still double current trading levels.

Looking at the charts, AA stock is down almost 55% from its April 19 record high of $62.35, and hit a two-year low of $25.01 on Dec. 26 -- off 2.4% today at $28.28. A rebound off this bottom has since stalled out in the $29-$30 region, which coincides with the equity's early December bear gap close and 40-day moving average -- the latter of which could signal more troubles ahead.

According to Schaeffer's Senior Quantitative Analyst Rocky White, there have been nine other times the shares have come within one standard deviation of this trendline following a significant stretch below it. One month after this signal, AA stock was down 4%, on average, with 78% of those returns negative.

alcoa stock daily chart jan 11


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