Traders and investors also look at technical parameters while making market entry or exit decisions. Moving averages and relative strength index (or RSI) are among the most widely used technical indicators. Typically, if a stock is trading way below its 100-day moving average, it’s an indication that the stock is oversold. Similarly, if a stock is trading much higher than its 100-day moving average, it indicates an overbought position. Likewise, an RSI above 70 indicates overbought positions while an RSI below 30 is associated with oversold positions. So, are aluminum companies’ recent moving averages telling us something? Let’s see.
Is Alcoa overbought?
The graph above shows key moving averages and 14-day RSI for different companies. Based on February 29 closing prices, Alcoa (AA) is trading 2.5% above its 100-day and 10% above its 20-day moving averages. The 14-day RSI is 60, which indicates slightly overbought positions. Currently, Alcoa forms 5.2% of the SPDR S&P North American Natural Resources ETF (NANR).
Century Aluminum looks overbought
Century Aluminum (CENX) looks to be the most overbought stock in our coverage of aluminum companies. It is trading 40% above its 100-day moving average and 35% above its 20-day moving average. Its RSI is almost 70, indicating its overbought position.
CENX looks weak on fundamental parameters also. The company has generated negative EBITDA (earnings before interest, taxes, depreciation, and amortization) in the last two quarters. CENX could come under pressure even with a small downward movement in aluminum prices. Furthermore, alumina prices have risen over the last month. As Century Aluminum buys alumina to produce aluminum, higher alumina prices negatively impact the company.
Let’s now look at aluminum producers’ production profiles to get a sense of some fundamental drivers.