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A CCI Breakout For Pan American

02/21/08 10:23:01 AM
by Arthur Hill

After consolidating the last few weeks, Pan American Silver broke through resistance with a gap and a surge in momentum.

Security:   PAAS
Position:   Accumulate

Pan American Silver (PAAS) formed a triangle consolidation from mid-January to mid-February. Prior to this consolidation, the stock surged from 29.54 to 39.74 (about 10 points). This created an overbought situation and the consolidation worked off this condition. This consolidation also represents a rest or corrective period after the surge. The rest period ended with a gap and breakout at 36 over the last two days.

Volume and momentum confirm the breakout. Volume peaked in mid-January and declined over the last few weeks. This is typical for a consolidation. Volume was below average just prior to the breakout and then surged with the breakout (red arrow). A surge in buying interest validates the breakout.

FIGURE 1: PAAS, DAILY. This stock formed a triangle consolidation from mid-January to mid-February.
Graphic provided by: MetaStock.
 
In Figure 1, the top indicator shows the commodity channel index (CCI), which is a momentum oscillator. The indicator declined from late December until early February. The red trendline captures this decline with the lower highs and lower lows. CCI broke above the red trendline and into positive territory as the stock surged. Momentum now favors the bulls.

The gap and breakout are bullish as long as they hold. A move below 34 would fill the gap and call for a reassessment. Strong breakouts should hold and a move back into the gap zone would show weakness. As long as the gap holds, the January high marks the first upside target around 40. The December 2007–January 2008 advance was around 10 points. A corresponding advance from the triangle low would carry to around 42 (32 + 10 = 42). Taken together, I would mark a target zone around 40–42.



Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

Title: Editor
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