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Orbite Aluminae a classic case of a breakdown

Construction of Orbite Aluminae’s Cap-Chat plant in Gaspésie.

Orbite

Hi Lou,

I've been watching ORT for a while and it looks to have tanked in the last few weeks. Do you think it's a good time to buy?

Thanks,

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Eliasz

Hey Eliasz,

Thanks for the assignment. I last examined the case for Orbite Aluminae Inc. on April 18, 2011 when the stock was trading for $4.80. Mario wanted to know if he should continue to add to his position or begin to take profits. The analysis conducted on his behalf indicated that after a massive advance the stock was pulling back. What was of concern was the MACD turning down which indicated that more selling was to be expected. It was advised that all the good news had been baked into the cake and that buyers would be best served waiting until the selling abated. Investors sitting on a profit were advised to get off the ride and enjoy the cash.

Retrospectively, that was the right call as the stock retreated to $1.50 in October, 2011. Another run at the charts will help determine if bottom-fishing ORT will prove a profitable.

The three-year chart tells the story of a stock that traded sideways for close to two years with support at $2 and resistance at $3. The break below support followed by the breach of $1.50 on heavy volume indicates that investors have capitulated. This could lead to a bounce off a rock bottom as buyers take advantage of an oversold situation. However, you have to keep in mind that a bounce is not a trend reversal and that ORT has a lot of work to do if it is going to regain its footing.

The six-month chart provides a closeup of the downtrend that started in February when the stock broke below $2.50 and the death cross that formed in March. If you are willing to trade ORT for profit and you can assume the risk associated with this company that is working to move its technology to commercial production, then fill your boots. For my money, this is a classic case of a breakdown and should only be approached by investors who have the courage to approach a wounded animal.

Make it a profitable day and happy capitalism!

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Have your own question for Lou? Send it in to lschizas@globeandmail.com.

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