Alcoa Breaks to New Highs

May 12, 2008: 11:53 PM CST

Alcoa (AA), a Dow Jones component that manufactures aluminum and is taking advantage of the recent materials rise, broke key resistance to make a new high in 2008 today, and could continue higher to make potential all-time highs soon.

Let’s see what’s up:

The stock broke a rectangle consolidation period from $34 to $39 per share, giving us a $5 range. If we add the $5 to the break-out zone of $39, then this gives us a classic price projection of $44, which would challenge all-time high prices.

The stock has been doing well throughout May, and volume is surging to the upside, further confirming the rectangle break. Notice how volume trailed off as the triangle consolidation pattern formed – this is in line with the classic texts of technical analysis.

Let’s pull it back to the monthly chart for a clearer perspective:

First, notice the recent volume surge in the stock (black arc).

Next, notice that the $40 per share zone has been significant resistance for quite some time. In mid-2007, price surged above this level but quickly fell the same month, which actually registered a negative month close (akin to a failed breakout which led to a price reversal).

Now, price is eeking above the $40 per share resistance zone and will mark the first monthly close above this zone if the stock can hold onto its gains for the next two or so weeks.

Also, notice price forming a clean ascending triangle – the break of which (to the upside) would potentially project prices to $60 or beyond (long-term, of course).

This stock is certainly one to keep your eye on to see if price can continue its momentum and inch its way to new highs over the next few weeks or months. Of course, it’s good for the Dow to see such a stock having excellent relative strength.

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