Aluminum Stock Could Slide Even Lower

AA has struggled on the charts despite short-covering activity

Apr 25, 2023 at 2:49 PM
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Aluminum stock Alcoa Corp (NYSE:AA) is now down 47% year-over-year and 17% year-to-date, after forming a bearish post-earnings reversal candle on April 20. Adding to this bearish technical setup, AA has breached its 36-month moving average that was support from September to October 2022, and is also beneath March-April lows near $38.

 Despite the underperformance, analysts remain optimistic; six of 14 covering brokerages still sport "buy" ratings. Short interest has plummeted -- down 50% since mid-November—yet AA trudges lower even amid this covering activity.

Options are affordable in a post-earnings volatility crush. Implied volatility (IV) is also lower than 99% of annual readings and sits below its 63-day historical volatility (HV). Our recommended July 40 put has a leverage ratio of 4.3 and will double on a 19.7% drop in the underlying equity.
 
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