American public utility company operating in the United States and Canada, American Water Works Company Inc. (NYSE: AWK) seems to be getting ready for a price bump after a slight correction according to the charts.
AWK shows quite a few bullish indications in its charts.
Bullish Move – Chart Indications
#1 Moving towards lower channel support: As you can see from the daily chart of AWK, the stock is trading within an uptrend channel since the past several months. AWK has typically taken support at the lower channel before bouncing back. The stock is currently moving downwards towards the lower channel after a previous bullish move to the upper channel, indicating that it is getting ready for its next big move. This is a bullish sign.
#2 Oversold RSI: Presently, the RSI reading for American Water Works Company is near 33. This indicates that the stock is getting oversold and a reversal of the downtrend is quite imminent.[hana-code-insert name=’adsense-article’ /]This reversal when reaching the lower channel has happened many times for the stock.
For example, on May 17, July 11, and September 27, the stock prices had reversed on reaching the lower channel levels.
At the same time, the RSI was also near oversold levels.
#3 Additional Support Levels: The stock’s daily chart shows that the price is currently above the 200-Day SMA (purple dotted line).
This is a good support for the stock.
There is also a long-term support (marked as the green line) for the stock at $85. As this long-term support line is also near the lower channel, it is an ideal entry point for trading this stock.
#4 Trendline Support: The weekly chart of AWK shows that the stock has historically taken support near its uptrend line (marked in brown color). The current price of the stock is near the uptrend line, indicating a possible reversal from these levels.
#5 Resistance-turned-support Level: According to the weekly charts of AWK, the stock has a long-term resistance-turned-support level (marked as the blue line) near its current price.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, purchase shares of AWK when it reaches the lower channel. This translates to buy price of $83.40 to $85.
TP: Our target price is the channel high at $95.
SL: To limit risk, place a stop loss below $79.50, which is below the last pivot low and the previous lower channel support on the daily chart.
Our target potential upside is nearly 14% in the next 5 months. For a risk of $3.9 (when entering at $83.40), our target reward is $11.60. In other words, this trade offers almost 3x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down from the current channel and goes below the long-term support 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 the sector.