Industrial machinery ($DJUSFE) stocks have been consolidating in what some technicians might argue is a bullish inverse head & shoulders pattern. If the group does eventually see money rotate back into it, Colfax Corp (CFX) could be a direct beneficiary. CFX lost 40% of its market capitalization in the second half of 2014 into early 2015, but it's beginning to show signs of life. The downtrend in 2015 is coming under attack as recent price moves to the upside have been supported by very solid volume. In addition, CFX has broken its recent relative downtrend (vs. its peers) in addition to its absolute price downtrend. The primary obstacle remaining seems to be the combination of price resistance (neckline) and relative resistance. If CFX can clear both, its odds of renewing its prior uptrend grow considerably.
Trading any stock in the right shoulder of a pattern is risky because the pattern doesn't confirm until neckline resistance is cleared with volume. But the reward can be quite handsome because on such a breakout, the measurement can be added to the breakout point. In this case, the measurement would be roughly 9-10 bucks. On a breakout above 53.00 neckline resistance, that would set the target near 62.00. Of course, any move back below the reverse head would negate the pattern altogether. Check out the chart:
Happy trading!
Tom
