Avalon Rare Metals

An under-$10 stock in the metal mining complex that looks ready to skyrocket higher is Avalon Rare Metals ( AVL), a Canada-based mineral exploration and development company. Avalon's primary focus is on rare metals and minerals, including tin, lithium, tantalum, niobium, cesium, indium, gallium, zirconium and calcium feldspar. This stock is off to a weak start in 2012, with shares off by around 30%.

If you take a look at the chart for Avalon Rare Metals, you'll notice that this stock was hit hard by the bears, with shares plunging from its March high of $3.16 to a recent low of $1.36 a share. During that monster move to the downside, shares of Avalon Rare Metals were consistently making lower highs and lower lows, which is bearish price action. That said, this stock has started to form a major bottoming pattern during the last two months, with buyers stepping in to defend the stock at around $1.36 to $1.40 a share. Now this stock is quickly moving within range of triggering a near-term breakout trade.

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Traders should now look for long-biased trades in AVL if it can manage to trigger a break out trade above some near-term overhead resistance at $1.80, and then above its 50-day moving average of $1.89 a share with high-volume. Look for volume on a sustained move or close above those levels that register near or above its three-month average action of 628,967 shares. If we get that action soon, then AVL could easily explode back towards its 200-day moving average of $2.75 a share in the near future.

If you're in the bull camp on AVL, then one could anticipate the breakout and look to buy this stock off weakness and simply use a stop that's a few percentage points below yesterday's low of $1.57 a share. You could even go all the way down to $1.40 for a stop if we get a significant pullback. That said, I would rather buy off strength and get long once it takes out yesterday's high of $1.72 a share, and then above $1.80 to $1.89 a share. If you buy off strength, then I would use a stop around $1.60 to $1.50 a share.

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