ChartWatch: IMAX is Ready to Break Out

IMAX (NYSE: IMAX) is poised to rally ahead of this summer’s film season.

Summer is an important time of year for filmmakers. Though Hunger Games brought swarms of viewers last spring, summer was the top season at the box office. The Avengers and Dark Knight Rises were last year’s standouts, grossing $623 million and $448 million, respectively.

Hollywood is hoping for the same type of success from such films as Iron Man 3, Star Trek Into Darkness and Wolverine this summer. Though film studios are sure to profit from some of these blockbusters, IMAX should see substantial gains, too.

IMAX operates specialized movie theatres, sells projection systems and rents two-dimensional and 3D film. It operates 731 theatres in 53 countries. The financial expectations are lofty as IMAX heads into an important time of the year. Analysts expect sales to grow 9.6% to $311 million and EPS to increase 23% to $0.99 this year.

Given the summer film hype, it’s no wonder that the shares are at a critical juncture. The stock has been trapped in a range between $18 and $26 (blue lines). In fact, the rise from December to March looked the same in both 2012 and 2013.

However, with an improved fundamental outlook and the potential for massive blockbuster hits, IMAX could burst past $26 this time around as opposed to falling all the way back to $18.
 This chart shows the price of IMAX shares along with an important resistance level to monitor.

One of the biggest problems last March for the stock was that it had already rallied from $13 in October. So investors wisely booked 100% gains near $26 in February and March.

However, this year is different because the shares bottomed near $20 in October. Investors should be more patient this time and less willing to take gains near $26. This lack of selling pressure may result in a breakout that has eluded the shares for a year. Such a breakout would have the potential to take IMAX to $32 very quickly.

I’ve taken a small position ahead of the breakout. My plan is to add more once $26 is firmly broken. Though I’ll be looking to cash some gains near $32, I wouldn’t be surprised to see the stock hit $36 with strong summer box office numbers.

Equities mentioned in this article: IMAX

Positions held in companies mentioned above: IMAX


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