Trading Alcoa (NYSE: AA) Targets a 75% Return in Two Months

Stocks continued to struggle on Thursday and all four of the main indices lost ground as a result. For the Dow it was its first loss in four days, but for the other three it marked the third straight day of losses. All four opened lower and they remained in negative territory throughout the day.

The Russell was hit the hardest and dropped 1.53%. That’s the third straight day the small-cap index has been the worst performer. The Nasdaq fell 0.72% and the S&P lost 0.44%. The Dow took the smallest hit at -0.38%.

Eight of the 10 main sectors fell with only utilities (+0.58%) and consumer discretionary (+0.04%) gaining ground on the day.

The energy sector was by far the worst performer with a drop of 2.28%. The healthcare sector declined 0.67% and that was the second worst performance.

My scans turned in their tenth straight negative result last night with 80 bearish signals and 17 bullish signals.

The barometer changed very little as these results were added to the total. The indicator came in with a reading of -55.1, up from -55.7.

Keeping with the pattern of a bullish trade idea followed by a bearish one, today’s trade idea is a bearish one. Alcoa (NYSE: AA) appeared on the bearish list and the company’s fundamental ratings are pretty poor. The EPS rating is 32 and the SMR rating is an E.

We see how the stock peaked up above $26 back in January before dropping sharply down below $18. The stock gapped lower on January 21 and the low before the gap was $22.64. The recent highs were in this same vicinity and filled the gap, now it looks as though the stock is headed lower again.

Buy to open the April 23-strike puts on AA at $3.30 or better. These options expire on April 16, 2021. I suggest a target gain of 75% and that means the stock will need to drop to $17.22 to hit our target. The low in January was $17.30, so be careful if that area acts as support. I suggest a stop at $22.75.

— Rick Pendergraft

Wall Street legend warns "A strange day is coming" [sponsor]
A massive and surprising new transition could soon impact the wealth of thousands, while leaving everyone else worse off than before. Click here to learn more.

Rick Pendergraft, Trades Of The Day

Rick Pendergraft has been studying, trading, analyzing and writing about the investment markets for over 30 years. He has worked for some of the largest financial publishers in the world and he has been quoted in the Wall Street Journal, USA Today, the New York Times and the Washington Post. In addition, he has been interviewed on Bloomberg, CNBC and Fox Business News. Rick's analysis process includes fundamental, sentiment and technical analysis.