The company that provides rapid manufacturing of low-volume 3D printed, CNC-machined, sheet metal, and injection-molded custom parts for prototyping and short-run production, Proto Labs Inc. (NYSE: PRLB) seems to be getting ready for a price surge according to its latest charts.
#1 Ascending triangle pattern: PRLB’s daily chart shows that the stock is currently forming an Ascending Triangle pattern. An Ascending Triangle pattern is a bullish pattern and is marked in the chart in purple color lines. The stock has historically taken support near the bottom of ascending triangle pattern before moving higher again. Currently, the stock is near the bottom of the ascending triangle pattern.
#2 Hammer: The latest candlestick in the daily chart is a hammer with a high volume. This pattern appearing during a downtrend usually signals the reversal of the downward trend.
This means that the indicator is near oversold levels and can potentially start an uptrend.
#4 Uptrend Unbroken: As you can see from the weekly chart of PRLB, the stock’s uptrend is still unbroken as the stock has been forming higher highs and higher lows.
Currently, the stock seems to be consolidating.
This is marked as a blue rectangle in the weekly chart.
#5 Above MAs: The weekly chart shows that the stock is currently trading above both 50-week as well as 200-week SMA. This implies that the uptrend is still quite strong. The 50-day SMA is currently above 200-day SMA, indicating that the short-term trend is also strong.
#6 William’s %R above -50: Currently, William’s %R is above -50, indicating that bulls are still in control.
#7 Near support level: There is a support level nearby, marked as green dotted lines. This seems like a good level for the stock to bounce back.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, you can buy half the intended quantity of shares of PRLB at the current price of $116.90. You can purchase the rest in two scenarios
- If the stock crosses above the 50-day SMA. This translates to a price of around $120.30
- If the stock corrects to the support level in the weekly chart. This translates to a price of around $111.20
TP: Our target prices are based on the ascending triangle pattern. The first TP is $125 and the second TP is $140 in the next 3-6 months.
SL: To limit risk, place a stop loss below $114.40 (when entering near $116.90) and $107.40 (when entering near $111.20). Note that this stop loss is on a closing basis.
The target potential upside for this trade is nearly 7% to 26%.
- Entry at $111.20: For a risk of $3.80, the target rewards are $13.80 and $28.80. This is a nearly 1:4 and 1:8 risk-reward trade
- Entry at $116.90: For a risk of $2.50, the target rewards are $8.10 and $23.10. This is a nearly 1:3 and 1:9 risk-reward trade
- Entry at $120.30: For a risk of $5.90, the target reward (TP#2) is $19.70. This is a nearly 1:3 risk-reward trade
This means that 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 from the ascending triangle 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 its sector.