This Trade Targets 7X More Upside Than Downside

The well-known manufacturer of lime and limestone products, United States Lime & Minerals Inc. (NASDAQ: USLM) shows signs of an upcoming price surge according to its latest charts.

Bullish Indications

#1 Falling Wedge Breakout: The daily chart of USLM shows that the stock was trading within a falling wedge pattern during the past few months. This is marked in the daily chart in purple color. Currently, the stock has broken out of this falling wedge pattern. A breakout from a bullish pattern like Falling Wedge Pattern shows that the stock has gained momentum and has the potential to move further up.

Daily chart – USLM

#2 RSI-Price Positive Divergence: There is an RSI-Price positive divergence on the daily 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 may move higher.

[hana-code-insert name=’adsense-article’ /]#3 MACD Above Signal Line: As you can see from the daily chart, the MACD line (blue color) is currently above the signal line (orange color), indicating a bullish bias.

The stock is also currently trading above its 50-day moving average which is another positive sign.

#4 Support near 50% Fibonacci Level: The weekly chart shows that the stock was on an uptrend from October 2015 and formed a top in October 2017.

Since then, the stock has been correcting.

It is now near the 50% Fibonacci retracement level of this move from $45.75 to $88.30. Usually, after an up-move, stocks retrace to any of the key Fibonacci levels before resuming its upmove. So, this 50% retracement level seems like a good support area.

Weekly chart – USLM

#5 RSI moving up: The RSI was oversold and is now moving upwards in the weekly chart, indicating a bullish bias.

#6 Uptrend Unbroken: As you can see from the weekly chart of the stock, the uptrend is still unbroken for the stock, as it has been forming higher highs and higher lows. The stock is also currently trading above its 200-week SMA, indicating overall bullishness.

However, there are also indications of a possible correction in the near-term due to following reasons

  • Gravestone Doji: The latest candle in the daily chart is a gravestone doji, which indicates a possible short-term reversal.
  • Overbought RSI: The daily chart shows that the RSI is nearing overbought levels.

Recommended Trade (based on the charts)

Buy Price: If you want to get in on this trade, the ideal buy level is if the stock corrects to falling wedge pattern breakout level of $73.30. You can also add on to the number of stocks once the stock crosses above the long-term resistance level of $82.50. This is marked as a green dotted line in the daily chart.

TP: Our target price is $100 in the next 6 months based on the falling wedge pattern breakout.

SL: To limit risk, place a stop-loss at $69.50. Note that this stop loss is on a closing basis.

Our target potential upside is almost 36% in the next 6 months.

When entering at $73.30, for a risk of $3.80, our first target reward is $26.70. This is a nearly 1:7 risk-reward trade. In other words, this trade offers nearly 7x more potential upside than downside.

Risks to Consider
The stock may reverse its overall trend if it breaks down with high volume from the falling wedge pattern breakout level. 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.

Happy Trading!


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