Trading Idea: What to Expect with Alcoa Breaking Support

Published on Monday, 07 May 2012 06:00 Written by TradersHuddle Wire

New York, May 7th (TradersHuddle.com) - Shares of Alcoa, Inc. (NYSE:AA) closed the trading session at $9.37 below calculated support at $9.47. The stock broke long setups, prompting the bulls to worry that this move might give the bears the upper hand.

Alcoa Inc. (NYSE:AA) produces primary aluminum, fabricated aluminum, and alumina, and participates in mining, refining, smelting, fabricating, and recycling. Its products are used in aircraft, automobiles, commercial transportation, building and construction, oil and gas, defense, and other industrial applications. Alcoa was founded in 1888 and serves customers worldwide.

Alcoa's stock was trading in a well defined range with support at $9.47 and resistance at $10.24; given that this range was broken traders will be closely monitoring the stock's price action for clues of direction.

From a technical perspective, it can be expected that previous support becomes resistance, as the new range gets defined. However, $9.47 will remain in focus as Alcoa's price action places the stock near the broken support. Traders will be waiting to see if it can bounce back and return to its previous range.

Traders wanting to establish a short position in Alcoa can do so if the stock breaks the intraday low, or if the stock bounces back and selling materializes again at previous support of $9.47. However, if traders want to build a long position, the best entry point to do so is when the price action takes the stock back to calculated support.