#1 Double Bottom Pattern: In the daily chart of ALK, there is a Double Bottom pattern being formed.
This is marked in the chart in green color as shown below.
A double bottom pattern is a bullish pattern and indicates that the stock price may increase in the near future.
#2 RSI moving up: In the daily chart, the RSI is moving upwards. This indicates a possible upmove.
#3 Long-term Support: The weekly chart of Alaska Air Group, Inc. shows that the stock is currently near a long-term support level. This is marked as pink dotted lines. This seems like a good level for the stock to bounce back from.
#4 RSI-Price positive divergence: There is an RSI-Price positive divergence on the weekly chart. The RSI made a higher low while the price made a lower low. This is marked on the chart as blue dotted lines. This indicates that the selling pressure is reducing and the stock might reverse soon.
#5 Bullish Candle: The monthly chart shows a high volume candle in February, with price contained within the January Candle. This is a possible bullish sign.
#6 Negative CCI: The monthly chart of ALK shows that the readings of CCI are near -100. This means that the indicator is near oversold levels and can potentially start an uptrend.
#7 Fibonacci Support: The stock had been on an uptrend from the beginning of 2012 and formed a top in January 2017. Since then, the stock has been correcting. It is now near the 50% Fibonacci retracement level of this move from $16.70 to $101.43. Usually, after an up-move, stocks retrace to any of the key Fibonacci levels before resuming its upmove. The stock has historically taken support at this 50% retracement level multiple times, as seen from the monthly chart.
Recommended Trade (based on the charts)
Buy Price: If you want to get in on this trade, you can purchase half the intended quantity of shares at the current price of $63.62 and the remaining once the stock breaks out of the double bottom pattern in the daily chart. This translates to a daily close above $74.85.
TP: When entering at the current price of $63.62, our target price is the neckline of the double bottom pattern at $75. If it breaks out of the neckline, add the remaining half for a second TP of $100.
SL: To limit risk, place a stop loss below $59.60. Note that this stop loss is on a closing basis.
Our target potential upside is almost 18% to 57% in the next 6 months. When entering at $63.62, for a risk of $4.02 our target rewards are $11.38 and $36.38. This is a 1:3 and 1:9 Risk-Reward trade.
In other words, this trade offers nearly 3x to 9x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down with high volume the current levels before completing the formation of the double bottom pattern. 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 the sector.