UEX Corp.'s Triangle Breakout

01/20/05 08:36:43 AM

by Kevin Hopson

A bullish triangle breakout and a pullback to key short-term support levels is creating an attractive opportunity.

Security: UEX.TO
Position: N/A

UEX Corp. (UEX.TO) is a Canadian uranium exploration company that trades on the Toronto Stock Exchange, as well as the pink sheets (UEXCF.PK) in the United States. Technically speaking, UEX had been consolidating in a symmetrical triangle pattern since October 2004, as illustrated by the green trendlines. Because symmetrical triangles tend to be continuation patterns and the prior move was up, a breakout was expected. As you can see, the stock recently broke to the upside from this formation, thus confirming the triangle theory.

If you take the base of the triangle (high point - low point) and add this figure ($2.75-$1.50=$1.25) to the point of breakout ($2.25), you come up with a possible price target of $3.50. Based on the most recent closing price, this would represent a 30% increase in UEX shares.

Figure 1: UEX Corp. Technically, UEX had been consolidating in a symmetrical triangle pattern since October 2004, as illustrated by the green trendlines. Because symmetrical triangles tend to be continuation patterns and the prior move was up, a breakout was expected. As you can see, the stock recently broke to the upside from this formation, thus confirming the triangle theory.

Graphic provided by: StockCharts.com.

In the meantime, the stock is pulling back to a key short-term support area in the $2.50 to $2.55 range. More specifically, note how the black median line, the stock's rising 10-day moving average ($2.54), and the 38.2% retracement level ($2.52) from the December-January rally have all converged in this price range. Given the confluence of support here, the $2.50 to $2.55 range could act as a good bouncing point for the stock and lead to a resumption of the rally.

Kevin Hopson

Kevin has been a technical analyst for roughly 10 years now. Previously, Kevin owned his own business and acted as a registered investment advisor, specializing in energy. He was also a freelance oil analyst for Orient Trading Co., a commodity futures trading firm in Japan. Kevin is currently a freelance writer.