Alcoa Corporation (AA) shares fell nearly 15% on Monday – its biggest single-day loss in nearly 10 years – after the U.S. government extended the deadline for companies to terminate their relationship with Rusal, the Russian aluminum giant that is under sanctions. The extended deadline means that Rusal will have time to sell off large amounts of aluminum that it had stockpiled following the sanctions, which is likely to negatively affect supply and demand.
Aluminum prices fell around 8% on the LME on Monday, while shares of many related companies tumbled in response, including Century Aluminum Company (CENX) and Arconic Inc. (ARNC), which both fell over 5%. Prior to the announcement, many analysts had been bullish on the market. Argus analysts recently noted that Alcoa would benefit from its pricing power amid the tighter market and reduced overall industry production. (See also: Alcoa Stock Breaks Out After Solid Q1.)
From a technical standpoint, Alcoa stock moved sharply lower from its highs of around $62.50 to its R2 support levels at $52.33. The relative strength index (RSI) moved from overbought territory to neutral levels at 50.16, while the moving average convergence divergence (MACD) could see a near-term bearish crossover. These indicators suggest that the stock could be on the verge of a prolonged downtrend, with no signs of being oversold yet.
Traders should watch for a breakdown from R2 support to R1 support and the 50-day moving average at around $48.60, where the stock could see some near-term support. A breakdown from these levels could lead to the pivot point and 200-day moving average at around $45.82. If the stock rebounds from R2 support, traders could see a resumed uptrend toward prior highs at around $62.50, but that scenario appears less likely given the bearish sentiment. (For more, see: Investing in the Metals Markets.)
Chart courtesy of StockCharts.com. The author holds no position in the stock(s) mentioned except through passively managed index funds.