Alcoa Stock Breaks Out After Solid Q1

Alcoa Corporation (AA) shares rose more than 4% on Wednesday after the company reported better-than-expected first quarter financial results. Revenue rose 16.2% to $3.09 billion – beating consensus estimates by $10 million – while net income of 77 cents per share beat consensus estimates by seven cents per share. In addition to the favorable results, the company raised its guidance for FY 2018 EBITDA to a range of $3.5 billion to $3.7 billion – ahead of its previous outlook.

The company believes that there will be a global deficit for both aluminum and alumina. With delays in smelter expansions in China, the global aluminum deficit is projected to grow to 300,000 to 700,000 metric tons, while global aluminum demand is projected to rise 4.25% to 5.25%. Management believes that there will be a deficit of up to 1.1 million metric tons following a balanced market last quarter. (See also: Investing in the Metals Markets.)

From a technical standpoint, the stock broke out from its prior highs made back in January to fresh 52-week highs. The relative strength index (RSI) moved to oversold levels at 81.37, but the moving average convergence divergence (MACD) accelerated its bullish uptrend. These technical indicators suggest that the stock could see further upside over the coming sessions, but a period of consolidation could occur before a more significant move.

[Learn more about supplemental technical indicators like the RSI and the MACD in Chapter 4 of the Technical Analysis course on the Investopedia Academy]

Traders should watch for some consolidation above prior highs at around $57.00 over the coming sessions before a further move higher. If the stock breaks below the prior highs, traders should watch for a move to retest R2 support at around $52.33 or R1 support and the 50-day moving average at around $48.00. The favorable industry fundamentals and financial performance suggest that traders should keep a bullish bias. (For more, see: Who Are Alcoa's Main Competitors?)

Chart courtesy of StockCharts.com. The author holds no position in the stock(s) mentioned except through passively managed index funds.