Alcoa Inc. (AA) shares fell in after-hours trading after reported a decline in profit and a lowered outlook for aerospace industry sales. The bearish drop accelerated after delivering disappointing outlook of aluminum demand growth of +5%, a full point lower than the prior guidance. The company reported net income of $108 million, or $0.07 per share, a slight beat of the $0.02 estimate, but well over 20 cents lower than last year's print. Revenue however missed with a $4.95 billion reading, significantly off the $5.27 billion forecast and down 15% year-over-year. Today’s 4.5% stock price decline to $9.29 in after-hours trade takes price closer to lower bound of the recent consolidation pattern. The company noted that Aerospace sales is projected to grow at 6-8% pace, much lower than the 8-9% prior. The company also lowered their outlook for global heavy duty truck and trailer end market.
Price action on the AA 240-minute chart shows that if price breaks below the psychological $9.0 handle, we could see price drop towards the $8.80 level. It is around that area that we could see a confluence of bullish butterfly patterns. For both bullish butterfly patterns, Point D is targeted with the 127.2% Fibonacci expansion level of the X to A leg and the 161.8% Fibonacci expansion level of the B to C move. If valid, we could see price target the middle of the recent range.
If price stabilizes here and recaptures the $10.20 level, we could see further upside target the October high of $11.18. If bearishness invalidates the reversal patterns, major support will come from the 50-day SMA, which trades around the $8.95 level.
The Trade: Buy AA at $8.80, with a stop loss at $8.01 and a take profit at $11.15. The Risk/Reward Ratio is 1:3