Alcoa provides the official start to earnings season after US markets close for trading. This reports is particularly significant not only for its own share price, but this time around, it could set the tone for earnings reports and guidance across a number of sectors. The street is expecting Alcoa to report adjusted earnings per shares of $0.22 after last quarter came in at $0.18, well ahead of the $0.12 street estimate. Sales are expected to be $5.84B, pretty much the same as last quarter. Action in Alcoa’s share price suggests that traders are taking a more cautious view of the report than analysts. After steadily climbing for a year, Alcoa shares levelled off over the summer and in September they completed a double top just above $17.00. This coincided with a negative RSI divergence that indicated upward momentum was starting to weaken. Since then, the shares have been in retreat falling back under their 50-day moving average while their RSI fell under 50 and stayed below it to confirm a correction starting and a downturn in momentum underway. Currently support appears near $15.00 a recent low, with more possible at the 200-day moving average near $13.80. Overall, the recent stock action suggests that expectations for the coming quarter have eased back a bit but we could still see a significant correction on a miss. Shortfalls in results and/or guidance this week already from Yum! Brands and Monsanto suggest that the risk of disappointment is higher this quarter. A big positive surprise on the other hand, while less likely, could help to stabilize the stock and shore up support. Alcoa’s results may also have wider implications for stocks around the world. Traders may look to the revenues for signs of strength or weakness in demand across regions and also if the recent decline in base metal prices has taken a toll on results. Perhaps more importantly, traders may look to the results and guidance to see how much of an impact the huge USD rally of the last six weeks has had on corporate earnings in Q3 and what the impact may be on Q4. With the USD having gained so much in a short amount of time, we could see exporters struggle with their goods suddenly a lot more expensive overseas, with importers potentially benefitting from a drop in costs. Companies with large overseas operations may see the profits of those businesses shrink is USD terms which may also impact results.
Trading Analysis: Alcoa and the kickoff to earnings season
20:00, 07 October 2014