The basic materials sector has been under pressure for the last four trading days and it is the worst performing sector of the 10 main sectors during that period. The Materials Select Sector SPDR ETF (NYSE: XLB) has dropped 1.94% over the last four days. Alcoa (NYSE: AA) is a member of the materials sector and it fell 4.78% on Thursday, February 28.
The sudden decline could be just the beginning for Alcoa as the stock hit the upper rail of a downward sloped trend channel that has defined the trend over the last 10 months. The upper rail connects the highs from last April and October and the lower rail connects the lows from June, July, and December.
We also see that the daily stochastic readings are in overbought territory and just made a bearish crossover. The 10-day RSI was in overbought territory as well and dropped after the selling on Thursday.
The Tickeron AI Trend Prediction tool generated a bearish signal on February 27 with the signal calling for a drop of at least 4% in the coming months. The prediction came with a confidence level of 71% and 71% of previous predictions have been successful.
Alcoa’s fundamentals may be part of the problem for the stock. Earnings have been flat over the last three years and the EPS dropped by 37% in the most recent quarter. Sales have grown by 11% per year over the last three years and they were up by 5% in the most recent quarter.