Watchlist: MTD Infra Bullish Formation Flag and Cup & Handle

MTD Infraperdana (MTDI) rose very strongly from a low of 0.995 on 29 Jun to a high of 1.44 on 5 July giving a gain of 0.445 or almost 45% in just 5 trading days. It has since corrected for the last 2 trading days at the strong resistance of 1.40 - 1.44 which also stopped the rise of the stock in 2001, 2002, 2003 and also very recently in May 2006. It will take some effort to clear this resistance but if it does then the next targets are 1.70, 2.15 and 2.55.

The good news is that there are now 2 potential bullish patterns forming which may enable it to breach the 1.44 resistance & to hit the above targets - a Flag and better still a "Cup & Handle" formation.

Flag - It is still very early in the formation stage and it may take anything from 1 to 3 weeks before the formation is complete. Volume is also faling, providing early confirmation for a Flag (D1 - E1 and D2 - E2). A breakout from the Flag will have a measurement gain of at least 45 sen from point of breakout.

The second formation is the C&H. The cup is marked as D3-X-Y-D2 (note: I am using lines to mark the cup as Metastock does not allow me to draw a circular cup, but you get the idea). The handle is the Flag (D1-E1 & D2 - E2). As required of the pattern the volume also falls significantly in the formation of the cup bottom (X -Y) & rises when it forms the side of the cup (Y-D2).

It is a very bullish pattern and if it breaks above the prior peak of 1.44 it can rise all the way up to 2.55.

To read more about the C&H check out this link http://www.investors.com/learn/b10b.asp

So keep an eye on this stock. The C&H formation in MTDI is classic and almost perfect. One does not always find such a perfect formation in the charts. It is very bullish and once there is a breakout from the Flag and prices rise above 1.44 it will be a very strong BUY.

Caution: Buy only when there is a high volume breakout from the Flag and not before.