AA Follow up and P/L Report

AA (Alcoa) was entered Monday because it looked like there was an earnings leak (earnings after the bell Tuesday). AA beat lowered expectations on Revenue and EPS and popped higher from there. Whether to hold AA and how long depended on the charts. I decided to use both The Trend Channel and my X-Over System to judge AA's pullbacks and to have a trailing stop in place.

Today AA was closed, below the P/L I have some charts that show you why, but I will be watching AA for a potential re-entry on the long side if the pullback is constructive, otherwise, AA was simply traded by the pros on an earnings leak.

P/L...

At a fill of $7.85, which was one cent above the lows of the day, and a fill of $8.32, AA's gain came to +5.99% which isn't bad considering it's a large cap and was only held less than a trading week.

The 30 min chart was one of 6 charts that were all in line and telling us something was going on here, note the flat range where 3C is leading positive, this is a typical accumulate range (in this position within the trend) or distribution area (if an uptrend had preceded the range) where market makers or in this case, specialists from the NYSE try to fill at VWAP or a designated price range that is typically low and tight, if the middle man (market maker for the NASDAQ and Specialist for the NYSE) can get that order together at the desired range, they'll get more business, if not...

It's not easy to fill large orders like the one we see here, besides the size effecting the supply/demand dynamic of price action, there are specialized High Frequency Traders who specialize in "Pinging for Icebergs", or trying to find large institutional orders being filled, the HFT's are so fast that once they've identified an "Iceberg", they can front run the order and often force institutional players to pay a lot more for an order than they want to or get a lot less for a position than they want and the difference is the HFT's profit.

The small negative divegrence on the chart above alone would not concern me, but....

 This 1 min chart is VERY obvious something is going on today.

Remember I threw this position in to my X-Over system which is a trading system itself, but I use if to judge the assets behavior against its normal character. Originally the system was designed to root out false crossovers.

 Above on the 60 min chart we see a short signal, a stop and a long signal. RSI is not making a higher high as it should be which is not reason to exit, but is a red flag. With this system, the first pullback after a new signal is almost always to the yellow 10-bar average, the second and subsequent corrections are almost always to the blue 22-bar average until the trend develops more and then I'd throw this in to a daily chart.

I also used my custom (award winning) Trend Channel, which automatically adjusts to each assets own volatility and can not only hold a trend, but can even hold corrections within a trend without stopping out. You'll never exit at the exact top or bottom with this system, but it will keep you in for a larger chunk of the trend rather than making arbitrary decisions about how much is enough. When the character of trend changes too much, a stop will generally occur and while there may be more gains after the stop, they are typically in the very volatile, choppy top of a trend, the channel keeps you in for the trend and gets you out before the volatility/chop and lower returns.

You can see from left to right a short trend with no stop out as price did not close above the lowest level of the top channel, around 10/4 it did stop out and that was it for the trend. On the upside, there was no stop as price did not close below the highest level of the lower channel, it still hasn't stopped out, I estimated where a pullback would meet the Trend Channel as it will continue to lock in gains almost every hour.

I'll look for a constructive pullback to possibly enter AA, if there's really something to this move beyond an earnings leak, then that gap is likely to be filled, I see NO reason to sit in AA and sit through draw-down in this situation.