Alcoa Plunges 5.8% on Earnings Jitters and Sector Headwinds: What’s Fueling the Selloff?

Summary
• Alcoa (AA) gaps down to $61.63, with intraday price collapsing 5.77% to $59.99
• Q4 earnings forecast signals 8.7% YoY EPS decline, with alumina sales projected to drop 46%
• Analysts split on AA: 6 buy ratings vs. 2 sell, with average price target of $47.75 (-24% downside)

Alcoa’s sharp intraday selloff has sent shockwaves through the aluminum sector, with the stock trading below $60 for the first time since late 2024. The move follows a bearish earnings forecast, analyst downgrade revisions, and a broader sector correction. With turnover surging to 9.2 million shares and implied volatility spiking to 352%, traders are scrambling to position for a potential breakdown.

Earnings Dampening and Analyst Revisions Weigh on Alcoa
The selloff is driven by a bearish earnings outlook: Wall Street expects Q4 EPS of $0.95 (-8.7% YoY) and $3.24B revenue (-7% YoY). Analysts revised estimates upward by 7.3% over 30 days, but the consensus remains bearish on alumina sales (-46% YoY) and pricing pressures. A JPMorgan downgrade to 'Underweight' and a 24% downside target ($47.75) have amplified selling pressure. The stock’s 52-week low of $21.53 looms as a psychological catalyst.

Aluminum Sector Under Pressure as KALU Follows AA’s Lead
The aluminum sector is in retreat, with Kaiser Aluminum (KALU) down 1.65% despite AA’s -5.77% plunge. Global aluminum prices fell to $3,141.75/tonne (-0.9%) amid China’s crackdown on high-frequency trading and production overcapacity fears. Smelters in Iceland, Mozambique, and Australia face operational halts due to bauxite shortages and geopolitical risks. AA’s weakness reflects broader supply-side fragility and deflationary pressures in the sector.

Options Playbook: Capitalizing on AA’s Volatility and Sector Weakness
• 200-day MA: $34.56 (far below) | RSI: 72.85 (overbought) | MACD: 5.25 (bullish) | Bollinger Bands: $45.54–$69.59
• Short-term support at $59.99 (intraday low) and $57.56 (20-day MA). Break below $57.56 could trigger a test of $45.54 (lower Bollinger band).
• Top Options:
• AA20260123P58 (Put): Strike $58, Expiry 1/23, IV 61.11%, Leverage 47.61%, Delta -0.334, Theta -0.012, Gamma 0.067, Turnover $29.5M. High leverage and liquidity make this ideal for a 5% downside scenario (Payoff: $1.13/share).
• AA20260123P56 (Put): Strike $56, Expiry 1/23, IV 63.73%, Leverage 82.18%, Delta -0.216, Theta -0.032, Gamma 0.052, Turnover $10.2M. Strong gamma and moderate IV position this for a mid-term bearish play (Payoff: $4.13/share).
Aggressive short-sellers should target AA20260123P58 into a breakdown below $59.99. For a balanced approach, AA20260123P56 offers leverage with lower delta exposure.

Backtest Alcoa Stock Performance
The backtest of AA's performance after a -6% intraday plunge from 2022 to now shows a generally positive response, with win rates and returns indicating resilience:

Alcoa at Crossroads: Defend $59.99 or Break into New Downtrend
Alcoa’s near-term fate hinges on its ability to hold $59.99 (intraday low) and $57.56 (20-day MA). A breakdown below $57.56 could accelerate the stock toward $45.54 (lower Bollinger band) and the 24% analyst downside target. The sector’s fragility—exemplified by KALU’s -1.65%—underscores systemic risks. Traders should prioritize AA20260123P58 for a 5% downside bet and monitor the 1/23 expiry for liquidity. If $59.99 holds, a rebound may test $63.35 (intraday high), but the broader bearish thesis remains intact.