Aluminum producer Alcoa Corp (NYSE:AA) has been on an impressive win streak lately, up 1.1% at $41.17 today as shares charge back toward their May 10, two-year peak of $44.42. The 10-day moving average has also helped guide the equity higher, and year-to-date, AA is up 77%. Plus, there's evidence AA isn't done climbing just yet, with a historically bullish signal now flashing.
AA Aug 9
Specifically, AA is trading near a 52-week high amid historically low implied volatility (IV) — a bullish combination for Alcoa stock in the past. According to a study from Schaeffer's Senior Quantitative Analyst Rocky White, there have been two other times in the past five years when the security was trading within 2% of its 52-week high, while its Schaeffer's Volatility Index (SVI) stood in the 20th percentile of its annual range or lower. This is now the case with AA's SVI of 47%, which sits in the lowest percentile of its annual range.
White's data shows that one month after both of these signals, the security was higher, averaging an 8.1% return. From the stock's current perch, a similar move would have AA toppling its aforementioned two-year peak, putting it just above the $48 level.
A shift in sentiment could give AA some leverage, too. Of the seven analysts in coverage, three still consider the stock a tepid "hold." Meanwhile, short interest is up 14.3% in the last two reporting periods, and now makes up 6.2% of the stock's available float — ample room for a short squeeze, should some of these bears begin to hit the exits.
Now is an opportune time to buy options on AA. In addition to the equity's extremely low SVI, which implies options traders are pricing in low volatility expectations at the moment, the stock's Schaeffer's Volatility Scorecard (SVS) sits at a high 89 out of 100. This means AA tends to outperform these volatility expectations — a boon for buyers.