Is Vale Setting up for a Break Out?

Published on Wednesday, 01 February 2012 06:52 Written by TradersHuddle Staff

New York, February 1st (TradersHuddle.com) - Shares of Vale SA (NYSE:VALE) closed the trading session at $25.30 placing the price action in a very tight range, given that calculated support is set at $24.04 and the calculated resistance based on an algorithm of peaks and troughs is set at $25.35

Companhia Vale do Rio Doce (NYSE:VALE), through its subsidiaries, operates as a diversified metals and mining company worldwide. Vale produces and sells iron ore, pellets, manganese, alloys, gold, nickel, copper, kaolin, bauxite, alumina, aluminum, and potash. The Company is based in Brazil, where it owns and operates railroads and maritime terminals.

Vale's stock price action indicates that both sellers and buyers are materializing very close to each other, which is indicative to a momentum building area, as the stock can resolve by breaking out of the tight range that developed.

Traders wanting to establish a position should place close attention to Vale's price action, as any movement outside its predefined range of $24.04 and $25.35 could grab the attention of momentum buyers, looking for a big movement in the price of the stock. Traders need to be aware that tight range resolution works both ways, hence, a move below support at $24.04 could spark above average selling. A tiered approach can be a good way to approach starting a position in Vale's, by establishing a starter position while the stock is in the tight range, and then adding to the position as it breaks and closes above resistance.