A Picture of Perfection

VALE, a Brazilian mining conglomerate, got absolutely pounded over the past 5 years as it lost almost 90% of its value. Chalk up the decline to a number of factors including the fact that Brazilian stocks have been out of favor and being a commodity play, it tends to perform best in inflationary an environment. The combination of the confluence of dollar strength, Brazilian political disorder and deflation was a toxic brew.

But a funny thing happened earlier this year. Why? I cannot tell you but you can see in Vale’s chart below, price bottomed. And subsequent movement has created a very interesting and potentially extremely profitable investment setup. I have labeled what is an almost perfectly symmetrical inverse head and shoulders bottoming pattern. What makes it so attractive is 4 fold 1) the left shoulder and right shoulder formed at almost the exact same price level 2) the neckline is horizontal 3) volume patterns confirm the pattern and support further upside 4) momentum has confirmed a switch from the bearish to bullish zone. And while those technical signals are about as perfect as it gets, what really has my piqued my interest is the fact it broke out of the pattern last week indicating an upside target of more than 70%. And potentially even much more … but let’s don’t get ahead of ourselves.

San Ramon's best independent fee only investment advisor - Vale 11-28-16

There is no doubt VALE is a volatile stock and any upside movement will be met with a ton of overhead supply making the move higher a bumpy one, especially as it gets to the $11 level. In spite of that, with the right management plan, VALE is a stock worthy of consideration as it more than exceeds a 3:1 reward to risk ratio requirement which don’t present themselves all that often.