Diversified global developer, manufacturer and seller of security and inspection products, medical devices, and optoelectronic-based components, as well as a provider of engineering and manufacturing services, OSI Systems, Inc. (NASDAQ: OSIS) seems to be getting ready for a price bump as per the latest charts.
Bullish Move – Chart Indications
#1 Falling Wedge Breakout: As you can see from the daily chart of OSIS, the stock had been forming a falling wedge pattern for the past several months. This is marked as blue color lines. OSIS had previously taken support at the bottom of the wedge before bouncing back again. The stock has currently broken out of the falling wedge pattern after taking support at the bottom of the wedge. A falling wedge is a bullish pattern and a breakout from it implies that the stock may move higher in the short term.
#2 RSI Strong: Relative strength index (RSI) is currently above 50 and moving up. This indicates strength of the current upmove.
This is marked in the chart in orange color. This is a possible sign of an upcoming bullish move.
#4 MACD above Signal Line: In the daily chart, the MACD line (light blue color) has crossed above the MACD signal line (orange color) which is typically considered as a potential buy signal.
#5 Above MA: The stock is currently trading above its 50-day SMA, indicating possible bullishness.
#6 Gap Resistance: OSIS has a strong gap resistance and is marked in the chart as green dotted line. Once the stock closes above this level, there is a good chance that the price may move higher.
#7 Uptrend Unbroken: The weekly chart of OSIS shows that the uptrend is still unbroken, as the stock is making higher highs and higher lows for the past several months.
#8 Stock Trading within Range: The stock has been trading within a range (shown as a blue rectangle in the weekly chart) for past several years. Currently, the stock has taken support at the lower end of this range and is moving upwards.
#9 RSI moving up: In the weekly chart, the RSI is currently above 50 and moving up, indicating strength.
#10: MACD cross: The MACD line has crossed above the signal line in the weekly chart. This is a bullish sign as well.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, purchase half the intended quantity of shares of OSIS at the current price of $68.81. The other half of the shares can be purchased in either of these 2 scenarios
- If the stock crosses above the gap support of $76
- If the stock corrects to near the bottom of the wedge at $58
These buy levels are marked as green rectangles in the daily chart above.
TP: Our target prices are $95 and $105 in the next 4-6 months.
SL: To limit risk, place a stop loss below $61.50 when entering at $76 or $68.81. Place stop loss below $56 when entering at $58. Note that the stop loss is on a closing basis.
Our target potential upside 38% to 81% in the next 4-6 months.
- Entry at $58: For a risk of $2, our first target reward is $37 and second target reward is $47. This is a nearly 1:19 and 1:24 risk-reward trade.
- Entry at $68.81: For a risk of $7.31, our first target reward is $26.19 and second target reward is $36.19. This is a nearly 1:4 and 1:5 risk-reward trade.
- Entry at $76: For a risk of $14.50, our target reward (TP#2) is $29. This is a nearly 1:2 risk-reward trade.
In other words, this trade offers 2x to 24x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down from the falling wedge pattern with 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 energy sector.
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