Bullish Indications
#1 Falling Wedge Breakout: The daily chart of SRLP shows that the stock was trading within a falling wedge pattern for the past 7 months. This is marked in the daily chart in dark blue color. Currently, the stock has broken out of this falling wedge pattern. A falling wedge pattern is a bullish pattern and a breakout from this pattern shows that the stock has gained momentum and has the potential to move further up.
#2 IH&S Breakout in Daily chart: As you can see from the daily chart of SRLP below, the stock has also broken out of an Inverted Head and Shoulders (IH&S) pattern within the falling wedge pattern. 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.
#3 Trading Above MA: The stock is currently trading above its 50-day as well as 200-day moving averages, indicating a bullish bias for the stock.
#4 Flag Pattern Breakout: As seen from the weekly chart below, the stock was in a strong uptrend from February 2016 after which the stock started consolidating and was in a narrow range. This is a classic flag pattern and is marked in the chart below. On the week ending January 22, 2018, the stock broke 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, which is an uptrend in this case.
#5 MACD crossover: In the weekly chart, the MACD (light blue color) is currently crossing above the MACD signal line (orange color) and starting to move upwards. A potential buy signal is generated when the MACD line crosses above the MACD Signal Line. This indicates a possible bullish setup.
Recommended Trade (based on the charts)
Buy Price: If you want to get in on this trade, you can purchase shares of SRLP at the current price of $26.75.
TP: Our first target price is $30 in 3 months and the second target price is $35 in 6 months based on the falling wedge and IH&S pattern breakout.
SL: To limit risk, place a stop loss at the low of the shoulder of the IH&S pattern. This translates to $24.80. Note that this stop loss is on a closing basis.
Our target potential upside is almost 12% to 31% in the next 3-6 months.
For a risk of $1.95, our first target reward is $3.25 and second target reward is $8.25. This is a 1:2 risk-reward trade for TP#1 and 1:4 risk-reward trade for TP#2.
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 Inverted Head and Shoulders pattern 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 the sector.
Happy Trading!
Tara
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