Alcoa earnings were released after the close on Tuesday but is it enough to stop the sell-off and turn the market around? Sales fell to $5.45 billion from $5.83 billion. Net loss for the first quarter was $178 million or 16 cents a shared compared with net income of $149 million or 13 cents a share for the same quarter last year. When you take out the restructuring charge of $276 million earnings fell to $98 million from or 9 cents a share from $121 million or 11 cents a share. So what do all these numbers tell investors? In my opinion, sales are declining further at Alcoa and the earnings coming in at 9 cents are from continuing to reduce costs such as closing of the Point Henry smelting plant in Australia which was too expensive to operate. The market may like these numbers, but I don’t think it will be enough.
After hours though the stock was up to $12.83 a rise of about 2 percent.
Alcoa Stock Chart
Alcoa stock is up 19% since Jan 2 2014 as of the close today. This is an excellent return and a lot of the outlook will depend on how investors determine the outlook for the next quarter will be. At 9 cents a share the company easily beat the estimates of 5 cents by a wide margin, but investors will scrutinize the revenue numbers which as I have explained in previous articles, is far more difficult to manipulate and often gives a clearer picture of the trend. The revenue for the quarter declined despite the forward guidance last month in which Alcoa predict increases in revenue from growing demand. That has not come about but instead revenue continues to decline.
Alcoa Stock 3 Month Daily Chart
The 3 month chart of Alcoa shows that since the end of January when the stock reached $12 it really has been moving more sideways than anything else. Finally leading up to earnings the stock rose to just over $13.00 and then with the selling in the general market, the stock has moved lower. Today after hours, the stock moved back up to around $12.83 but still below the $13.00 high.
The Slow Stochastic has the stock still rated as sell. MACD though is neutral on the stock although the buy signal from late March is no longer active in the stock.
Money Flow is the more interesting as it shows money have been pouring into the stock almost steadily over the past 3 months but without the stock hardly moving higher. This shows that money managers have been busy in the stock but never buying enough to push the stock higher, but continuing to accumulate especially on small daily dips. Obviously a lot of institutional investors think the stock will move higher.
The last indicator is momentum and it continues to stay positive and was up again today.
Alcoa Stock Earnings Summary
The unofficial start to the quarterly earnings is really pretty much the same as the last unofficial start to the quarterly earnings. It shows that a lot of companies are increasing earnings by controlling and reducing costs while at the same time continuing to see low revenue growth. This is also part of the reason why the overall GDP is growing but not overly robustly. The outlook for the market direction in general is this might create a pop on Wednesday but then I would expect the pop to end within a day or two in Alcoa Stock and the market direction will have to deal with more revenue numbers from other companies.
Dennis Gartman
You may have read recently that on Friday investor Dennis Gartman went 100% into cash on Friday just 3 days after announcing on CNBC he was 100% invested and bullish. This may seem a bit odd but remember that every investor no matter what the track record has to make decisions based on what they see and what they believe. Gartman thought Friday marked a market top. I have never seen a market top action in the form that he saw but that doesn’t mean Friday didn’t mark a top. I though never believe 100% cash is the way to ever go. The problem investors still face is the long shadow of the 2008 to 2009 bear market. Bear markets have huge negative impacts on investors. Bear markets are scary, downright frightening and difficult to navigate. The pummeling stocks take can devastate portfolios so as I have said many times before, staying out of the market at times is also a strategy.
In my case I believe in the stocks I own and I always have 30% cash available to place at risk during stormy periods. Therefore my fear of the market is less. I also primarily sell puts at prices I feel is fair value so this leaves room for stocks to fall before even reaching my put strike. I also trade in down markets through buying Spy Put Options and using Ultra-Short ETFs. Many investors do not. Overall I think the media makes far too much out of events like Dennis Gartman’s reaction on Friday. There is really only one factor that drives stocks up and down – fear. Fear of missing a rally and fear of being caught in a downturn.
Final Word On Expected Reaction to Alcoa Stock Numbers
The selling on Friday and Monday was very strong and while on Friday it was more limited to tech stocks and juniors, Monday saw a lot of the negative sentiment move to the general market. The correction in January was not very deep and with so much capital flowing into stocks it may have helped push the correction back to a rally without the correction running its normal course. This is just an opinion of course but I think the numbers from Alcoa may be encouraging but the revenue numbers show that revenue is still not growing and that is what I believe stocks really need to see – strong revenue growth.
I am remaining cautious, and still considering some slightly in the money covered calls and Spy Put Options. We will wait to see how much of a rally stocks get out of Alcoa’s numbers. I am guessing, not a lot, but we will know shortly.
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