Gabriel Andre uses technical analysis to forecast the movements of Macmahon Holdings Limited (ASX:MAH). This penny stock made 150% of gains during a six-month period last year, before retracing this year. But Gabriel thinks it could soon be testing the resistance at its historical high of $2…

Macmahon Holdings Limited (ASX:MAH) operates as an engineering contractor focused on delivering specialised services to clients in Australia, New Zealand and Malaysia. The company’s core businesses comprise open mining and crushing, underground mining and civil engineering.

The stock climbed from less than $0.10 in June 2001 to $0.97 in February 2007 at a regular pace. However it really took off in early May 2007 as it was trading around $0.80, to reach twice the level of $2 a few months later, in November 2007. It’s a 150% rise (between point A and point b on the chart).

Click for a larger image

The stock has corrected this large increase and has been trading since within a consolidation phase. The first retracement move drove the price until the 50% Fibonacci ratio (point C) and towards the 61.8% ratio one month later (point D). The fact that the price action eventually bounced back on this level means that the outlook is still positive on the long-term, and that new attempts to test the historical highs may be possible.

Recently, on August 13 and 19, two lows have been posted on the long-term support line (through points A, D and E). As a result, the price rebounded and should test now the long-term resistance line (through points B, F and G). The trading envelope is narrowing.

The MACD has triggered a bullish signal as it curved upward and crossed above its signal line. Other oscillators confirm this therefore a further move on the upside is likely.

An interesting complement to the MACD is the TRIX indicator. TRIX displays the percent rate-of-change of a triple exponentially smoothed moving average of the security’s closing price. This triple exponential smoothing is designed to filter out “insignificant” cycles.

Here the TRIX changes direction and crosses above its signal line. It confirms the MACD indication. The stochastic oscillator is also positive but shows that extreme levels could soon be reached. The theory behind is that in an upward-trending market, prices tend to close near their high.

Therefore the level of $2, the historical high price, will be probably a strong resistance to the current bullish price action. Today the stock is trading at $1.825. A jump to $2 is a 9.6% further rise. At this level the stock would be probably overbought on the short-term so a pull-back would be expected.

The stock would need to clear this resistance and cross above $2 to get new fresh bullish momentum. On the downside, the main support line is set around $1.55.

Source: Macmahon Holdings Limited (ASX:MAH) Near a 52 Week High