#1 Hammer: The latest candlestick in the daily chart of NGS is a hammer.
This is marked as a pink ellipse in the chart below.
This candle is considered as a sign of a reversal of the downward trend.
#2 Ascending triangle pattern support: NGS daily chart shows that the stock has currently taken support at the bottom of the Ascending Triangle pattern. An Ascending Triangle pattern is a bullish pattern and is marked in the chart in purple lines. The stock has historically taken support near the bottom of ascending triangle pattern before moving higher again.
#3 RSI nearing Oversold: In the daily chart, the RSI is near 33, indicating that it is nearing oversold levels. This implies that a possible reversal is around the corner.
#4 IH&S Pattern: As you can see from the weekly chart of NGS, the stock is currently forming an inverted head and shoulders (IH&S) pattern. An IH&S pattern is a strong bullish pattern and indicates that the stock may move higher in the short term.
#5 Uptrend unbroken: The weekly chart shows that the stock’s uptrend is still unbroken. The stock is also trading above the 200-week SMA, indicating that the trend is still bullish.
#6 Near long-term support: As you can see from the weekly chart, the stock is currently trading near a long-term support level (marked in green color dotted line). This is a good point for the stock for a possible bounce back.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level is when NGS completes and breaks out of the IH&S pattern at $28.90. But you can buy half the intended quantity now and follow a strict stop loss if you want a speedier entry. This speedier entry level translates to the current price of $25.50.
TP: Our target prices are based on the IH&S pattern breakout and ascending triangle breakout. The first TP is $34.50 and the second TP is $44.
SL: To limit risk, place a stop loss at $23.45. Note that this stop loss is on a closing basis.
The target potential upside for this trade is nearly 35% to 73% in the next 6 months.
- Entry at $25.50: For a risk of $2.05, the target rewards are $9.00 and $18.50. This is a nearly 1:4 and 1:9 risk-reward trade, which means that this trade offers nearly 4X to 9X more potential upside than downside.
- Entry at $28.90: For a risk of $5.45, the target reward (TP#2) is $15.10. This is a nearly 1:3 risk-reward trade, which means that this trade offers nearly 3X more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down with high volume from the IH&S pattern and ascending triangle 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 its sector.
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