An opportunity in Magna

• Posted by Greg Harmon
• on May 12th, 2015

Magna International makes auto parts. A lot of them. Headquartered in Canada is it is one of the largest auto parts makers in the world. The stock had a great run higher from late 2012 until September 2014, rising over 150%. But then it stalled and has done nothing since. Dead money they call it right?

Not so fast. Every stock goes through periods trending and non-trending price action. after a year of running hard to the upside shouldn’t Magna ($MGA) also be allowed to move sideways for a while?

To the technical investor this sideways action can also tell a story. Not as obvious as a straight trend higher but a story nonetheless. The chart above shows two patterns in the Magna stock price during the recent consolidation that bode for higher prices in the future.

The first is an ascending triangle. The two red lines show tightening price action with 5 touches before a break to the upside Monday. The target on the break of the triangle is a move to 69.50.

The second pattern is a bearish Deep Crab harmonic. This pattern carries a Potential Reversal Zone (PRZ) at 66.70. What this means is that by passing the ‘B’ point it can be traded to the upside to that PRZ before any bearish reversal is expected from the harmonics.

The momentum indicators are both bullish ans supportive of continued upside as well. Using a stop under the triangle break out this gives a reward to risk ratio of better than 10:1.

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