The well-known distributor of swimming pool supplies, equipment and related leisure products, Pool Corporation (NASDAQ: POOL) seems to be gearing up for a surge as per its latest charts.
#1 Ascending triangle pattern Breakout: POOL’s daily chart shows that the stock had broken out of an Ascending Triangle pattern. An Ascending Triangle pattern is a bullish pattern. This is marked on the daily chart in pink color. The base of the triangle also generally acts a good support level.
#2 Channel Breakout: As you can see from the daily chart, the stock was trading within a channel during the past few weeks. 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.
This IH&S pattern is marked in the chart in orange color.
An IH&S pattern is a strong bullish pattern and indicates that the stock may move higher in the short term.
Typically, a stock corrects back to the breakout level of the IH&S pattern before resuming its upmove.
#4 MACD above signal line: As you can see from the daily chart, the MACD line (blue color) is currently above the signal line (orange color), indicating a bullish bias.
#5 Alligator Awake: William’s Alligator has currently woken up in an upward direction (green line above the red line and blue line) and candles have formed above the three lines. This indicates a possible bullish bias.
In addition, the stock is also trading above both 50-day and 200-day SMA, indicating that the bulls are currently in control.
#6 Above MAs in Weekly Chart: The weekly chart of POOL shows that the stock is currently trading above both 50-week as well as 200-week SMA. This is a clear bullish indication.
#7 Flag Breakout in Weekly Chart: As you can see from the weekly chart, the stock was in a strong uptrend, after which it started consolidating and was in a narrow range. This is a classic flag pattern and is marked in the chart in pink color. Currently, the stock has broken out of the flag. A Flag is a continuation pattern. Whenever a stock breaks out of the flag pattern, it typically continues its previous trend (uptrend in this case). However, a retest of the flag pattern’s breakout level usually happens before resuming the trend.
#8 MACD above signal line: In the weekly chart as well, the MACD line (blue color) is currently above the signal line (orange color), indicating a bullish bias.
#9 ADX moving up: The ADX line is currently above the –DI line and moving up. The +DI line is also above the –DI line. These are good bullish indications.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the buy levels of POOL is when it pulls back and reaches the breakout level of ascending triangle and IH&S pattern. This translates to a price of around $150.
Note: For those who prefer a speedier entry, you can buy half the intended quantity of stocks at the current price of $156.86.
TP: Our target prices are $165 and $180 in the next 3-6 months.
SL: To limit risk, place a stop loss below $141.50. Note that this stop loss is on a closing basis.
Our target potential upside is nearly 10% to 20% in the next 3-6 months.
- Entry at $150: For a risk of $8.50, the target rewards are $15 and $30. This is a nearly 1:2 and 1:4 risk-reward trade.
- Entry at $156.86: For a risk of $15.36, the target reward (TP#2) is $23.14. This is a nearly 1:2 risk-reward trade.
In other words, this trade offers nearly 2X to 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 IH&S pattern and ascending triangle breakout 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 in its sector.