The digital financial services company headquartered in Detroit, Michigan, Ally Financial Inc. (NYSE: ALLY) shows signs of an upcoming price surge according to its latest charts.
#1 Falling Wedge Breakout: The daily chart of ALLY shows that the stock was trading within a falling wedge pattern during the past few months. This is marked in the daily chart in blue color. Currently, the stock has broken out of this falling wedge pattern. A breakout from a bullish pattern like Falling Wedge Pattern shows that the stock has gained momentum and has the potential to move further up.
#2 RSI Moving Up: In the daily chart, the RSI is above 50 and moving up. This indicates that the stock may move higher.
The stock is also currently trading above its 50-day SMA which is another positive sign.
#4 Bullish Stochastic: The %K line (blue color) is above the %D line (orange color) in the stochastic, indicating bullishness.
#5 Uptrend Unbroken: As you can see from the weekly chart of the stock, the uptrend is still unbroken for the stock, as it has been forming higher highs and higher lows.
#6 RSI moving up: The RSI is above 50 and moving upwards in the weekly chart, indicating a bullish bias.
#7 Support near 61.8% Fibonacci Level: The weekly chart shows that the stock was on an uptrend after which it has been correcting. It is now near the 61.8% Fibonacci retracement level of this move. Usually, after an up-move, stocks retrace to any of the key Fibonacci levels before resuming its upmove. So, this 61.8% retracement level seems like a good support area.
#8 Flag Pattern: The weekly chart also shows that the stock has been forming a flag pattern (marked in purple color). A flag is a bullish pattern and a breakout from this pattern typically causes the stock to move higher.
Recommended Trade (based on the charts)
Buy Price: If you want to get in on this trade, the ideal buy level is in these two scenarios
- If the stock corrects to the bottom of the falling wedge pattern at around $25.00.
- If the stock price closes above the long-term resistance level of around $27.50.
TP: Our target prices are $30 and $35 in the next 3-6 months.
SL: To limit risk, place a stop-loss at $25.50 (when entering near $27.50) and $24 (when entering near $25). Note that this stop loss is on a closing basis.
Our target potential upside is almost 20% to 40% in the next 3-6 months.
- Entering at $25: For a risk of $1.00, our target rewards are $5.00 and $10.00. This is a nearly 1:5 and 1:10 risk-reward trade.
- Entering at $27.50: For a risk of $2.00, our target reward (TP#2) is $7.50. This is a nearly 1:4 risk-reward trade.
In other words, this trade offers nearly 4x to 10x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down with high volume from the falling wedge 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.