Mechel OAO ($MTL), the Russian steel company, has been gearing up for a breakout for over a month. Now that a bullish breakout has occurred, traders may begin to jump on the bandwagon. Here are my reasons to like this stock..
Range Breakout
$MTL had endured a 5-week period of range contraction before finally getting a breakout from the range in yesterday’s trading. This breakout could spark the next period of range expansion, as price moves higher toward $30.
Taking a closer look at the stock shows that the breakout from the range could also be the breakout from the right shoulder of an inverted H&S, which is also bullish. In either case, new 3-month highs have been reached, which could lead to the old saying, “Buying begets buying”.
Narrow Value Area
The Value Area for the month of September is abnormally narrow, which lends itself to a trending environment. Given that a breakout has occurred to the upside, this narrow Value Area could forecast a bullish trending environment throughout the month, likely back toward $30.
As a matter of fact, the $30.20 level is a virgin POC (VPOC) from May, which means the market may want to “fill” this level looking forward. Therefore, this level may attract price like a magnet.
Rising POC
The last four months have seen the monthly Point of Control decline, thereby indicating overall weakness, or a downtrending environment.
However, the monthly POC for September is higher than that of August, which means valuation has increased in this issue. This two-month higher value situation could lead to a trend change in this stock, which indicates further strength ahead.
If price can break through the $25 level, then $30 could be the target to watch.
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Let’s see what happens!
Cheers!
Frank Ochoa
PivotBoss.com
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