Molycorp(MCP) Breaking Out From “Coiled Spring”

Posted by barkand on March 24, 2011 under Classic chart patterns | Be the First to Comment

Stock charts don’t always give us pretty “textbook” patterns to evaluate, and that is the case with Molycorp(MCP).

If you connect the relevant closing prices going back to last autumn, you can see something of a triangle, or “coiled spring”, forming on the chart. Funny thing is the shares originally broke out through the bottom of the triangle first before reversing. Elliott Wave people might call this a “throwover”. Whatever you want to call it, we give more credibility to the reversal than the original breakdown simply due to the volume.

Some people might fear that the prices of “rare earth” minerals the company produces are not sustainable. Or that the share price is too high, compared to the price last summer. But in our collective mind, whatever excesses existed in the share price have been worked out during the basing period that began at the beginning of the year.

 If we are right, MCP should add $20 from its breakout point and reach new highs in the upper $60s. If our analysis is wrong, we plan to bail out at the apex of our triangle around $47. All in all, we feel its a chance worth taking.