Kentucky-based company and popular restaurant franchise Papa John’s Int’l, Inc. (NASDAQ: PZZA) seems to be poised for a surge as per its latest charts.
There are quite a few bullish indicators in the charts of America’s third largest take-out and pizza delivery restaurant chain.
#1 Breakout from Downtrend Channel: As you can see from the daily chart of PZZA below, the stock was within a short-term downtrend channel for the past year. This channel is marked in blue color in the daily chart below. But now, the stock has broken out of this downtrend channel and has started moving up. This is a good bullish sign.
#2 Range breakout: The stock price was within a range from November 2017 to January 2018. This is marked using pink dotted lines in the daily chart.[hana-code-insert name=’adsense-article’ /]After multiple attempts, this range has now been broken with huge volumes, indicating a possible upmove.
#3 Bullish Marubozo candle: The latest candlestick on the chart is the Marubozo candle, indicating bullishness.
The candle’s open is equal to low and close is equal to high, indicating that buyers have been in control throughout the day.
#4 Triple Bottom Pattern Breakout: From the daily chart of PZZA, we can see that the stock had recently broken out of a Triple Bottom pattern.
This is marked in the chart in light blue color. This is yet another possible sign of an upcoming bullish move.
#5 Weekly Uptrend Unbroken: As you can see from the weekly chart of PZZA, the stock has been forming higher highs and higher lows for the past few years. This uptrend is still intact.
#6 Trend line support: The weekly chart of PZZA shows that the stock is currently near the trend line support. This is a good buy point as the stock has historically bounced back from the trendline as seen from the weekly chart.
#7 MACD crossover: In the weekly chart of PZZA, the MACD line was sloping downwards from December 2016 till the start of January 2018. Presently, the MACD line (light blue color) has crossed above the MACD signal line (orange color) which is typically considered as a potential buy signal.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, buy half of the intended quantity of stocks at the current price of $63.78. Buy the remaining quantity once the stock corrects back to the range breakout level of $60.85.
TP: Our target price is $85. Note: You can book half the profit if the stock shows resistance at $71.
SL: To limit risk, place a stop loss below the low of the earlier trading range at $54. Note that this stop loss is on a closing basis.
Our target potential upside is almost 33%-40% in the next 6 months.
- Entering at $60.85: For a risk of $6.85, our target reward is $24.15. This is a 1: 3.5 Risk-Reward trade.
- Entering at $63.78: For a risk of $9.78, our target reward is $21.22. This is a 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 the stock breaks down below the long-term uptrend line 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 its sector.