Platinum and palladium are two metals that traders hardly, if ever, think about. The strong price action in these metals recently should bring the companies that mine these metals to traders' attention.

Platinum and palladium are used mostly in industrial applications, such as catalytic converters and high-technology applications. These metals are an interesting "sideshow" to the main events of gold, silver, steel and copper. But we see an opportunity in the group as liquidity flows into the metal sector looking for opportunities on the long side and finds its way into platinum and palladium names.

Platinum -- Continuous Contract
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Both metals have broken out of large consolidation formations that have been in place since early 2006. Platinum broke out over resistance in April, while palladium moved to new highs in May. The bulls have reasserted control in both of these metals, and we expect to see a resumption of the primary long-term uptrend.

Palladium -- Continuous Contract
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The broken resistance lines should now act as support in the commodities and provide a base for the next leg higher. The strength in the two will translate into stronger profits for companies mining these materials, and that, in turn, should lead to higher equity prices for these companies.

Finding pure plays related to these metals is difficult, and most companies mining these metals are foreign ADRs, such as Impala Platinum ( IMPUY), which is a South African miner, and Lonmin ( LNMIY), which is the world's largest producer of platinum and is based in England.

North American Palladium
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One stock that trades domestically and is a pure play in the palladium market is North American Palladium ( PAL). North American Palladium is a Canadian miner that operates one of the largest palladium mines in the world. PAL is an unhedged miner, which means that increases in palladium prices should translate immediately into profits on the bottom line for the company.

The company's stock has made some significant technical improvements lately and looks attractive as a long at these levels. PAL formed a large rectangle base formation over the last year. The bulls took control in April of 2007 and broke the stock out of the basing pattern. It then rallied after the breakout, but it has since pulled back and is retesting support.

Considering the recent breakout in palladium prices, the pullback and retest of support by PAL looks like an opportunity to get long. Buy the stock at this level and use a break of the support line at $9.40 as a stop loss.

At the time of publication, John Hughes and Scott Maragioglio had no positions in the stocks mentioned. Hughes and Maragioglio co-founded Epiphany Equity Research, which has developed and utilizes proprietary tools to identify and track liquidity changes in the market indices and sectors. Hughes advises numerous asset managers, hedge funds and institutions managing in excess of $30 billion. Maragioglio is a member of the market technicians association (MTA) as well as The American Association of Professional Technical Analysts (AAPTA) and holds a Chartered Market Technician (CMT) designation. Maragioglio has also served on the board of directors of the AAPTA.