Great Trades

Great stock trades based on fundamentals and technical analysis.

Monday, November 27, 2006


MMG Cup & Handle Breakout II

In the spring, we highlighted a chart pattern on Metalline Mining called a Cup & Handle breakout. At the time, the stock was at $3.00 and we stated that the target for that breakout was over $5:

That pattern played out perfectly, as the stock proceeded to trade over $5 both in May and in June.

Today, MMG is rallying on drill results indicating a potential new zinc deposit, and the stock is again displaying the same cup & handle chart pattern. In fact, if you look at the chart we showed you in the spring (weekly) next to the current chart (daily), you can see these charts are eerily similar, even down to the volume patterns:

In both cases, the stock was driven down on low volume by impatient sellers, and then exploded back higher on much higher volume when that selling pressure was gone and the fundamentals took over, recovering the previous losses. A handle formed each time as the stock consolidated the big recovery in a relatively tight trading range, as profit takers exited and new investors entered. A breakout from this handle consolidation is very bullish and points to higher prices to come.

With the depth of the current cup about $2.58, the Cup & Handle breakout target is over $6.50, about a dollar higher than the spring high. Interestingly, the P&F chart also points to a preliminary target of $6.50:

We’ve shown how the fundamentals point to a much higher stock price for MMG over the long term. Now, the technical analysis points to a much higher price, too. We don’t know if the current Cup & Handle pattern will play out as well as the last one, but we remain very confident in the long-term upside of the stock.

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