by Pinchas Cohen
Yesterday’s first decline in U.S. stocks in seven trading sessions was led by General Electric (NYSE:GE) and Arconic (NYSE:ARNC), the former Alcoa (NYSE:AA) spinoff that manufactures aluminum parts for the aviation and automotive industries. We already addressed GE's bearish outlook two weeks ago, so today we'll focus on Arconic.
Ironically, these two companies have more in common than just leading equities to their first decline in over a week. Arconic's newly named CEO Charles Blankenship is a former CEO of GE Appliances. Despite the fact that Arconic’s biggest shareholder, Elliot Management, announced its satisfaction with the selection and expressed faith in the new CEO, the stock (after first jumping on its revenue beat) closed with a double-digit loss on missed profit expectations. Will the stock continue to decline, or might this be a buying opportunity?
Buy or Sell?
The answer depends on your time-frame. In the next days to weeks Arconic is likely to resume its decline, while in the next weeks to months it's likely to climb.
While the price closed 3.5 percent below its rising channel since June 27, as well as below the former downtrend since February, which could suggest the price will resume within that downtrend, it is still well within its rising channel since January 2016.
The sharp fall may have been foreseen by analysts who pay attention to the inter-relationship of moving averages. In the beginning of the month, a “Dead-Cross” was executed, when the 100 dma (blue) crossed below the 200 dma (red).
Trading Strategies
Conservative traders should wait for a retesting of the longer rising channel (which is at $21 and rising) and buy into the main trend.
Moderate traders may also short, before joining conservative traders with the long position, either on a successful retest of the violated shorter rising channel with a return move that fails to climb back into the channel or if the price falls below the $24 area, which is a potential support by all the traders that made up the congestion in that area.
Aggressive traders may short, providing they can afford a stop-loss above the channel bottom, which gets higher every day and may meet with the 200 dma, at $26.00. Otherwise they risk losing the position.