The holding company principally engaged in the life and health insurance business, Independence Holding Company (NYSE: IHC) seems to be poised for a price surge as per its latest charts.
This is marked in the daily chart in blue color.
Currently, the stock has broken out of this channel and is moving up. This is a bullish sign.
Note: the stock was in a strong uptrend for the past several weeks.
Then the stock started consolidating and was in a narrow range.
This is a classic flag pattern, which is a continuation pattern. (flagpole is marked in orange line in the daily chart) Whenever a stock breaks out of the flag pattern, it typically continues its previous trend which is an uptrend in this case.
#2 Above MAs: The daily chart of IHC shows that the stock is currently trading above both 50-day and 200-day SMA. These are good bullish indications.
#3 Bullish Cross: The Chaikin oscillator shows that it has crossed above the zero line. This usually indicates that buying pressure is outweighing the selling pressure.
#4 Unbroken Uptrend in Weekly Chart: As seen from the weekly chart, the stock has been on an uptrend as it has been making higher highs and higher lows for the past several months. The stock price is also above the 50-week and 200-week SMA. This is also a possible bullish sign.
#4 Chaikin Bullish Cross: In the weekly chart as well, Chaikin oscillator has crossed above the zero line. This is also a bullish sign.
However, there are also signs that the stock may correct slightly in the near term.
- Overbought RSI in daily and weekly chart: The RSI is overbought in both daily and weekly chart, indicating that the price may move down in the near-term.
- RSI-Price negative divergence in the weekly chart: The weekly chart shows that price made a higher high while the RSI made a lower high. This is marked on the weekly chart as blue dotted lines. This implies that the price may decline.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal price for purchasing the shares of IHC is if it corrects to the channel breakout level. This translates to $29.60.
However, if you want a speedy entry, you can purchase half the intended quantity of shares at the current price of $31.
TP: Our first target price (TP#1) is $35 and the second target price (TP#2) is $40 in the next 3-5 months.
SL: To limit risk, place stop-loss at $28.10. Note that stop loss is on a closing basis.
Our target potential upside is 18% to 35% in the next 3-5 months.
- Entry at $29.60: For a risk of $1.50, our target rewards are $5.40 and $10.40. This is a 1:3 and 1:7 risk-reward trade.
- Entry at $31: For a risk of $2.90, our target reward is (TP#2) $9. This is a 1:3 risk-reward trade.
In other words, this trade offers nearly 3x to 7x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down from the uptrend with a high volume. 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.
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