#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 pink color. A falling wedge pattern is a bullish pattern. Once the stock moves up and breaks out from it, it has the potential to move further up.
Note: The stock was in a strong uptrend for the past several months. Then the stock started consolidating and was in a narrow range. This is a classic flag pattern, which is a continuation pattern. The flagpole is marked in the orange line in the daily chart. Whenever a stock breaks out of the flag pattern, it typically continues its previous trend which is an uptrend in this case.
#2 Good supports: The daily chart of KAI shows that the stock is near the trendline as well as near the 200-day SMA. These are good support levels.
#3 Bullish Candle: The latest candle on the daily chart of KAI is a Hammer, which is a bullish candle.
#4 MACD Cross above Signal Line: The daily chart of KAI shows that the MACD (light blue color) has crossed above the MACD signal line (orange color). When this happens, a potential buy signal is generated.
#5 Unbroken Uptrend in Weekly Chart: As evident from the weekly chart, the stock is in an uptrend as it has been making higher highs and higher lows for the past several months. The stock price is also above the 50-week and 200-week SMA. This is also a possible bullish sign.
#6 RSI moving up: The RSI is above 50 and moving up on the weekly chart of KAI, indicating strength.
#7 Bullish Harami: Currently, a bullish harami candlestick pattern is being formed in the weekly chart. This is the sign of a possible trend reversal to a bullish bias.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, you can purchase shares of KAI in two scenarios:
#1 When the stock breaks out of the falling wedge pattern. This translates to a price of $100.50
#2 When the stock corrects to the bottom of the falling wedge pattern and is near the trendline support. This translates to a price of around $92.40
TP: Our first target price (TP#1) is $110 in the next 4 months and the second target price (TP#2) is $115 in the next 6 months.
SL: To limit risk, place stop loss at $89.60 (if entering when the stock reaches the bottom of the falling wedge pattern) or at $98.20 (if entering after falling wedge pattern breakout). Note that stop loss is on a closing basis.
Our target potential upside is 9% to 24% in the next 4-6 months.
Entry at $92.40: For a risk of $2.80, our target rewards are $17.60 and $18.60. This is a 1:6 and 1:8 risk-reward trade.
Entry at $100.50: For a risk of $2.30, our target rewards are $9.50 and $14.50. This is a 1:4 and 1:6 risk-reward trade.
In other words, this trade offers nearly 4x to 8x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down from the trendline support 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 sector.
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