Stock Of The Day: Traders Watch Key Reversal Level On Alcoa

Shares of Alcoa Corporation AA continue to trend lower Tuesday. The stock was trading higher in the pre-market Monday, but the bears ended up overpowering the bulls. By the close, Alcoa had lost almost 6%.

Traders are watching the $28 level for a potential reversal. It has been support in the past. This is why it is our Stock of the Day.

The $28 level provided support in early August and early September. As you can see on the chart, a move higher followed each time the shares reached this support level.

It may be about to happen again.

A number of the traders and investors who sold shares around $28 in August regretted their decision when the price moved higher. Some vowed to buy their shares back if they could eventually get them for the same price they were sold at.

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When the stock dropped back to around $28 in September, these remorseful sellers placed buy orders. There were so many of them that it created support at the level again. If the current downtrend reaches that level, Alcoa may find support once more.

There is also a chance another move higher follows.

Support is a price level at which there is a large amount of buy interest. There are at least as many or more shares to be bought than there are to be sold. This is why moves lower pause or halt when they reach support. Sellers can sell as much as they want without lowering the price.

Sometimes, some of the people who want to buy become anxious. They can sense the presence of the other buyers and become concerned they will be willing to pay a higher price. These are the people the sellers would go to.

They decide to increase the prices they are willing to pay so they don't miss out.

Other anxious buyers see this and decide to increase their bid price as well. This could result in a bidding war that forces the stock higher. If Alcoa reaches $28, it may happen again.

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