Alcoa as a Market Indicator

This is an update to a trend we’ve been monitoring at the Options Institute over the past few years around earnings season.  Next week Alcoa (AA – 8.24) is scheduled to report their earnings results on Monday after the close.    The stock price reaction in response to the news on Tuesday.  How AA’s stock reacts to the earnings news can be an indication of how the overall stock market as represented by the S&P 500 performs over the next ten trading days.

Since 2000 Alcoa has had 53 earnings releases.  Of those 53 earnings releases the S&P 500 has moved the same direction as Alcoa’s stock price reaction 34 times or just under 65% of the time.  The real significance comes when AA stock has a positive reaction to earnings.  20 of the 53 times AA reported earnings the stock traded higher the first full trading day after earnings.  Of those 20 occurrences, the S&P 500 was higher 15 times after ten trading days.  That means 75% of AA’s positive earnings reactions were followed by a higher move in the S&P 500 over the next ten trading days.

So on Tuesday the 9th we can keep an eye on AA stock and maybe get a clue as to how the early part of earnings season will shape up for the S&P 500.  Ten days later I’ll follow up and we’ll see how the market did relative to AA’s performance on Tuesday.