Diversified producer of engineered solutions and materials for a variety of industries, Schweitzer-Mauduit International, Inc. (NYSE: SWM) seems to be ready for a price surge in the near-term. The company develops and manufactures engineered papers, films, nets, and nonwovens that are used in a diverse range of products.
#1 Strong Support: As you can see from the daily chart of SWM below, the stock has currently taken support at a long-term support level (marked as a green dotted line). This indicates bullishness.
#2 Cup and Handle pattern: The daily chart of SWM shows that a cup and handle pattern is being currently formed for the stock. This is marked in the chart in purple color. The cup and handle pattern is a consolidation and breakout pattern. Since this pattern is being formed for more than a year now, it indicates that the pattern is very strong. The cup was formed between December 2016 and January 2018. Currently, the handle is being formed. If the stock breaks out of the cup and handle pattern with high volume, the stock can possibly give high returns.
#3 Bullish Harami: The latest candlestick pattern in the daily chart of SWM is a Bullish Harami pattern. This signals a possible upcoming bullish movement.
#4 Strong RSI: The RSI was oversold and is currently moving upwards, indicating strength.
#5 Support at key Fibonacci Level: The stock had taken support at the 23.6% Fibonacci retracement level before bouncing back, as shown in the daily chart below. Since then, the stock has been moving up.
#6 Support at Uptrend Line: The weekly chart of SWM shows that the stock had broken out of a downtrend (marked as red dotted lines). Then it had started an uptrend in the past few weeks (marked as the blue line). Currently, the stock has taken support near the uptrend line.
#7 RSI near oversold: The weekly chart of SWM shows that the RSI is currently near oversold levels, indicating a possible reversal.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, you can purchase the shares of SWM at the current price level of $40.12.
TP: Our first target price is $48 and the second target price is $60. This is based on the breakout level from the cup and handle pattern.
SL: To limit risk, place a stop loss at $38.50. Note that this stop loss is on a closing basis.
Our target potential upside is nearly 20% to 50% in the next 4-6 months. For a risk of $1.62, our first target reward is $7.88 and the second target reward is $19.88. In other words, this trade offers nearly 5x to 12x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down from the cup and handle pattern. The sell-off of the stock could also be triggered in case of any negative news, overall weakness in the market, or any new government rules or regulatory changes in its sector.
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