After a slight pullback, oil drilling company Patterson-UTI Energy, Inc. (NASDAQ: PTEN) seems to be gearing up for a rally after a slight pullback within the next 5-6 months.
There are quite a few bullish indicators in PTEN’s charts.
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#1 Above 30EMA: As you can see from the weekly chart of PTEN below, the stock is currently trading above its 30-week EMA.
This indicates the strength in the current uptrend and is also a possible bullish sign.
There is also a good support at this 30-week EMA level.
#2 Aroon’s Bullish Bias: In the weekly chart shown below, the Aroon Oscillator indicates a possible bullish bias.
Since Aroon Up (Orange Line) is currently trading above 50 and Aroon Down (light blue line) is trading below 50, it indicates a possible bullish move in the near future.
#3 IH&S Pattern Breakout: From the daily chart of PTEN shown below, the stock had recently broken out of an Inverted Head and Shoulders pattern. This is marked in the chart in orange color. This is a possible sign of an upcoming bullish move.
#4 Ascending triangle pattern Breakout: PTEN’s daily chart also shows that the stock had recently broken out of an ascending triangle pattern. This is marked in the figure below in violet color. This is also a possible bullish sign.
Near-term Price correction
There is a possibility of price correction in the near term as per daily chart. This is because there is a MACD-Price negative divergence as shown in the chart. While the stock’s price is making higher highs, the MACD is making lower highs. This is called as a negative divergence and is marked on the chart as blue dotted lines. This implies that price may possibly move downwards for the short term.
However, there are two good support levels nearby. They are at the level from which the Inverted Head and Shoulders pattern broke out and the Ascending triangle pattern broke out. So, the correction is not expected to go below these support levels.
When the stock pulls back to these levels, it is a good buying opportunity.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the buy levels of PTEN is when it pulls back and reaches between the ranges of $20.93 to $21.64. This is marked in the daily chart.
TP: Our target price is the previous high in the daily chart. This translates to around $29.50.
SL: To limit risk, place a stop loss below the previous low of the daily chart, at $20.25. Note that this stop loss is on a closing basis.
Our target potential upside is nearly 36% to 41% in the next 5-6 months.
• For a risk of $1.39, the target reward is $7.86. This is a nearly 1:6 risk-reward trade.
• For a risk of $0.68, the target reward is $8.57. This is a nearly 1:13 risk-reward trade.
In other words, this trade offers nearly 6X to 13X more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down from the two pattern breakout levels. The sell-off of the stock could also be triggered in case of any negative news, overall weakness in the market, or any regulatory changes in its sector.
— Tara
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