Alcoa (AA) is a bit of a mystery. The short-term chart, below, is not bullish, but the leading indicators on the longer-term view suggest a turnaround is developing. The mystery is that turning points usually start on a daily chart and work out to longer time frames. Let's check.
AA's short-term chart, above, is not that attractive. We can see a two-day pop in price to test the 50-day moving average. This pop can extend further, of course, but right now the slope of the 50-day average still is pointed down, as is the slope of the longer 200-day average.
The On-Balance-Volume (OBV) line is nearly flat and is not suggesting yet that buyers have become more aggressive. Lastly, we don't have a bullish divergence between the price action and the momentum study. It's not an ideal set-up that a chartist would be attracted to, but we are not done.
The five-year weekly chart, above, shows some perspective and how a bottom can evolve. From late 2013 to the end of 2014, Alcoa made a steady march to nearly $18 from $8. We then saw a steady decline back to $8 and then lower still to $6.
Here is where 10,000 hours of looking at charts can help. There are two bullish divergences on this chart. As we made lower lows in price the past year, there is a higher low on the OBV line. The second bullish divergence is from a higher low on the momentum study on this time frame. These divergences did not appear on the daily chart.
Bottom line, these two bullish divergences can foreshadow a rebound. Selling pressure was lighter on the second decline and the rate of speed of the second decline slowed, probably due to scale-down buying.
Jim Cramer comments on Alcoa in this piece today from TheStreet.com.