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Is Alcoa Oversold at Current Price Levels?

Mark O'Hara

How Did Aluminum Producers Fare in 1Q16?

(Continued from Prior Part)

Oversold

Previously, we did a comparative analysis of aluminum producers’ 1Q16 production profile and other financial metrics. However, along with these fundamental analyses, traders and investors also look at technical aspects when making market entry or exit decisions. Moving averages and the RSI (relative strength index) are among the most widely used technical parameters. Generally, an RSI below 30 signifies an oversold position while an RSI above 70 is associated with overbought positions. In this part of the series, we’ll look at RSI and key moving averages for different aluminum producers.

Alcoa

The graph above shows RSI and moving averages for different aluminum producers based on May 13 closing prices. As you can see, Alcoa (AA) has a 14-day RSI of 37. The stock could be nearing the oversold territory based on this parameter. However, with the recent correction, Alcoa has breached its 200-day moving average (or DMA). Some traders perceive breaching long-term moving averages to be a bearish (SPXS) (SDOW) indicator. However, Alcoa is still marginally above its 100 DMA.

Peer companies

Century Aluminum also has a 14-day RSI of 37 and is trading above its 100 DMA. However, with the recent pullback, CENX is now trading below is 20 DMA. Norsk Hydro (NHYDY) and Constellium (CSTM) have 14-day RSIs of 41 and 46, respectively.

Some of these miners could be getting oversold with the recent correction in this sector. The recent round of sell-off in mining stocks has been driven by disappointing data points from China. You can read more about the recent data points from China in our series China’s April Trade Data: What It Means for Metal Investors.

Meanwhile, the key event that Alcoa investors should watch this year would be the company’s impending split. You can read How Alcoa Plans to Create Value through Its Upcoming Split to explore this in detail.

Browse this series on Market Realist: