A diversified utility company that engages in various energy and other businesses, Chesapeake Utilities Corporation (NYSE: CPK) seems to be poised for a price surge as per its latest charts.
Bullish Indications[hana-code-insert name=’adsense-article’ /]#1 Falling Wedge Pattern: As you can see from the daily chart, the stock has been trading within a falling wedge pattern during the past few weeks.
This is marked in the daily chart in purple color.
Once the stock moves up and breaks out from a bullish pattern like Falling Wedge Pattern, it has the potential to move further up.
#2 Double Bottom: The daily chart of CPK shows that a double bottom has been formed within the falling wedge pattern.
This is marked in the chart below. A Double bottom pattern is a bullish reversal pattern, indicating that the stock could possibly move upwards shortly.
#3 Bullish Candle: The latest candle on the daily chart of CPK is a Hammer, which is a bullish candle.
#4 RSI-Price Positive Divergence: In the daily chart of CPK, there is a positive divergence between price and Relative Strength Index (RSI). While the stock’s price is making lower lows, the RSI is making higher lows. This is called as a positive divergence and is marked on the chart as blue dotted lines. This implies that price might start moving upwards.
The RSI is also near the oversold level, further indicating that the stock has been oversold and the price may reverse to the upside.
#5 Unbroken Uptrend in Weekly Chart: As evident from the weekly chart, the stock is in an uptrend as has been making higher highs and higher lows for the past several years. The ADX is also near 30, indicating that the overall uptrend is still strong.
#6 Consolidation and Breakout Level Support: The stock had consolidated for more than a year between December 2015 and Feb 2017 before breaking out of the consolidation zone (marked as green rectangle in the chart). After an upward move, the stock has now corrected back to the breakout level and has taken support at this level. This seems to be a good point for an upmove.
#7 Weekly Double bottom: The stock is forming a double bottom around the 68 levels in the weekly chart. This indicates that the correction might be over and the stock might move up from this level.
#8 Weekly RSI-Price Positive Divergence: There is an RSI-Price positive divergence on the weekly chart. The RSI made a higher low while the price made a lower low. This is marked on the chart as blue dotted lines. This indicates that the selling pressure is reducing and the stock might reverse from here.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, you can purchase shares of CPK at the current price level of $69.15.
TP: Our first target price (TP#1) is $80 in the next 4 months and the second target price (TP#2) is $85 in the next 6 months.
SL: To limit risk, place stop loss at $66.80. Note that stop loss is on a closing basis.
Our target potential upside is 16% to 23% in the next 4-6 months. For a risk of $2.35, our target rewards are $10.85 and $15.85. This is a 1:5 and 1:7 risk-reward trade. In other words, this trade offers nearly 5x to 7x 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 a 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 energy sector.