America’s second-largest for-profit prison operator, The GEO Group Inc. (NYSE: GEO) shows signs of bullishness according to its latest charts.
Since April 2017, GEO had lost nearly a third of its value. However, the latest charts of GEO shows quite a few optimistic signs that point to a price surge in another 4-5 months.
#1 Strong Support Level: As you can see from the weekly chart of GEO below, there is a very good support near $23.00.
This was previously a major resistance level which was tested unsuccessfully multiple times during the past two years before finally breaking out.
GEO attempted to cross the resistance level in late 2015, March 2016, and July 2016 before finally accomplishing the feat on the week ending December 26, 2016.
Currently, the stock has taken support near this resistance-turned-support level.
This is a very good entry point for trading the stock.
#2 MACD Price Positive Divergence: In the weekly chart of GEO, there is a positive divergence between price and MACD. While the stock’s price is making lower lows, the MACD histogram is making higher lows. This is called as a positive divergence and is marked on the chart as blue dotted lines. This implies that price might reverse and start moving upwards again.
#3 High Volume Green Candle: In the daily chart of GEO, there was a high-volume green candle formed on 15 December 2017. This indicates strong buying. A retest back to the low of this green candle would be a good entry point.
#4 MACD crossover: In the daily chart, the MACD (light blue color) is currently crossing above the MACD signal line (orange color) and starting to move upwards. A potential buy signal is generated when the MACD line crosses above the MACD Signal Line. This indicates a possible bullish setup.
Recommended Trade (based on the charts)
Buy Price: If you want to get in on this trade, you can purchase shares of GEO at the current price of $23.63.
NOTE: However, a better entry point would be when the stock pulls back to the low of the high-volume green candle in the daily chart. This is near $23.05.
Ideally, it is best to buy half the intended quantity at the current price and purchase the remaining half quantity if the stock pulls back to $23.05.
TP: Our target price is the previous high price of $34.30.
SL: To limit risk, place a stop loss at $20.80.
Our target potential upside is almost 45% in the next 4-5 months. For a risk of $2.83, our target reward is $10.67. In other words, this trade offers nearly 4x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down with high volume from the resistance-turned-support level. 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 or new government rules in that specific sector.
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