Over the past few months, a trendline of resistance has formed in First Majestic Silver (AG).  If/when this trendline is broken, traders can expect a significant move in the stock.

AG is a mining company focused on silver production. Last week, the company announced the total production in the third-quarter reached 5.2 million silver equivalent ounces comprising 3.2 million ounces of silver and 25,771 ounces of gold. Compared to last quarter, silver and gold production increased 72% and 63%, respectively, due to strong operating performances across its three mines.

These increases are partially due to the fact that the company had to suspend operations in the second quarter because pandemic induced restrictions. But the company did have strong production as its La Encantada mine’s production produced 978,416 silver ounces, which was the second highest quarterly production since 2014.

The company has a current ratio of 2.5 and a debt to equity ratio of 0.3, yet its interest coverage is -5.2, so its fundamentals are mixed. Cash at the end of the quarter stood at $112 billion, which is down from $152 billion in the first quarter.

Growth is also low, as sales over the past year are down 7.1% and are forecasted to be flat over the next year. AG is a price to sales ratio of 6.7, higher than its industry and considerably higher than the S&P 500, indicating that the stock is overvalued from a revenue standpoint. The company is also not profitable with a profit margin of -23.1% and a return on equity of -11.4%.

AG has shown negative momentum over the short, mid and near term. These factors have resulted in “C” rating in our POWR Ratings system. Let’s see how the stock looks from a technical perspective.

Take a look at the 1-year chart of AG below with added notations:

Chart of AG provided by TradingView

Since its August peak, AG seems to have formed a clear, down trending trendline of resistance (red). The line of resistance is currently approaching $10, and a break above that line could mean higher prices, overall, for the stock.

A trader could buy AG if there is a break above the trendline of resistance with the expectation of a breakout.

Keep a close on AG over the next couple weeks, as the stock reports its latest quarterly results on November 5th.

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AG shares were trading at $10.54 per share on Tuesday morning, up $0.19 (+1.84%). Year-to-date, AG has declined -14.03%, versus a 8.24% rise in the benchmark S&P 500 index during the same period.

About the Author: christian

Christian is an expert stock market coach at the Adam Mesh Trading Group who has mentored more than 4,000 traders and investors. He is a professional technical analyst that is a certified Chartered Market Technician (CMT), which is a designation awarded by the CMT Association. Christian is also the author of the daily online newsletter Todays Big Stock. More...

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