Back on January 23rd when we first mentioned small cap Technical Communications (TCCO), we loved the fundamentals, but were leery of the chart. Though the momentum was bullish, TCCO was heading into a potential brick wall…the 2004 high of $7.25. That level had the potential to be a bearish reversal point, or the beginning of a new era for the stock. Since then, the issue has been forced - TCCO hit $7.49 on Monday, and closed at $7.40.

Technically speaking, that’s a breakout. Most good traders would probably not buy into it though, concerned that the strength and volume was just a very brief flash of brilliance…and a blow-off top. The gap doesn’t make it any easier to follow.

Those same traders might wait until the stock settled back to the 20 day moving average line (and closed the gap) before starting to test the waters. By doing so, they’re likely to achieve a much better entry level. In the meantime, we’d probably use the short-term bullish burst as an exit point, at least on part of any position.

Of course, the longevity of any uptrend - or recovery after a pullback - for Technical Communications is rooted in the performance of the company, which as we said has been impressive. Just to recap…

• P/E of 11.6 (versus industry average of 21.2)
• P/S of 1.8 (versus industry average of 1.31)
• Profit margin of 17.8% (versus industry average of 36.9%)
• Operating margin of 15.6% (versus industry average of 0.62%)
• ROE of 22.8%
• Revenue growth of 107% (versus industry average of 13.8%)
• Earnings growth of 896%

The market cap is $9 million, with sales at $5 million and growing. No wonder the chart is starting to run.

Once TCCO can get and stay above $7.25 or so, we think this stock has an excellent risk/reward ratio.

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