California-based specialty finance company Encore Capital Group, Inc. (NASDAQ: ECPG) is a leading provider of debt management and recovery solutions for consumers across a broad range of assets around the world. ECPG stock seems to be getting ready for a price bump in the short-term as per the latest charts.
Bullish Move – Chart Indications
#1 Moving towards lower channel support: As you can see from the daily chart of ECPG, the stock has been forming a falling wedge pattern for the past several months.[hana-code-insert name=’adsense-article’ /]ECPG has typically taken support at the bottom of the wedge before bouncing back.
The stock is currently moving downwards towards the lower end of the wedge after a previous bullish move to the upper end of the wedge, indicating that it is getting ready for its next move.
This is a bullish sign.
#2 RSI Near Oversold Levels: Relative strength index (RSI) is said to be oversold when it is near 30 and overbought when it is near 70.
Presently, the 14-day RSI reading for ECPG is near 34. This indicates that the stock is nearing oversold levels and a possible reversal of the downtrend is imminent.
#3 Additional Support: The stock’s daily chart shows that the price is currently near a resistance-turned-support level marked by the purple dotted line. This indicates that the stock may reverse from current levels.
#4 Hammer: The latest candle in daily chart is a hammer, indicating possible bullishness.
#5 Fibonacci Support: The current price of the stock is near the 23.6% Fibonacci retracement levels. This is a good support area for the stock.
#6 Uptrend Unbroken: The weekly chart of ECPG shows that the uptrend is still unbroken, as the stock is making higher highs and higher lows for the past several weeks.
#7 Above MAs: As you can see from the weekly chart, the stock is currently trading above its 50-week SMA and 200-week SMA. The 50-week SMA has also crossed above the 200-week SMA. All these indicate possible bullishness.
#8 Near long-term support: The weekly chart of ECPG shows that the stock is currently trading near a long-term support level (purple dotted line).
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, purchase shares of ECPG at the current price of $41.
TP: Our first target price is $47 in the next 2 months and the second target price is $52 in the next 4 months.
SL: To limit risk, place a stop loss at $39.80. Note that the stop loss is on a closing basis.
Our target potential upside is 15% to 27% in the next 2-4 months.
For a risk of $1.20, our first target reward is $6 and second target reward is $11. In other words, this trade offers 5x to 9x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down from the falling wedge pattern 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 the sector.
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