The life sciences company that provides products and services for small molecule active pharmaceutical ingredients, Cambrex Corporation (NYSE: CBM) shows signs of an upcoming price surge based on its latest charts.
#1 IH&S Pattern in Daily chart: As you can see from the daily chart of CBM below, over the past several months, the stock has been forming an Inverted Head and Shoulders (IH&S) pattern. An IH&S pattern is a strong bullish pattern and is marked in orange color in the chart below. After the completion of the IH&S pattern, the stock may move higher in the short term.
#2 Golden Cross: When short-term moving average crosses above the longer-term moving average, it is called as Golden cross and indicate a possible upcoming bullish movement. In the daily chart, the stock’s 50-day SMA has recently crossed above 200-day SMA, indicating bullishness.
[hana-code-insert name=’adsense-article’ /]#3 Doji: The latest candle on the daily chart of CBM is a Doji, which implies indecisiveness between buyers and sellers.
#4 Near Many Supports: The stock has currently taken support near its 50-day SMA.
There is also the 200-day SMA and trendline support nearby.
#5 Weekly IH&S: The weekly chart of CBM also shows that an Inverted Head and Shoulders pattern is being formed currently.
This is marked in the chart below. After an upmove, the stock corrected to around $49. Since then, the stock has been consolidating and has been forming an IH&S pattern on the weekly chart. The completion of this pattern would indicate that the earlier uptrend may resume.
#6 MACD Above Signal Line: As you can see from the weekly 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-week and 200-wek moving average which is another positive sign.
#7 Many Supports: There are many supports for the stock as per the weekly chart, like the 50-day SMA and the long-term support (marked as pink dotted lines)
Recommended Trade (based on the charts)
Buy Price: If you want to get in on this trade, you can purchase half the shares of CBM at the current price of $54 and the rest in either of these scenarios:
- If the stock corrects to the trendline support in the daily chart (blue color line). This translates to around $53.
- If the stock breaks out of the IH&S pattern. This translates to a daily close above $57.30.
TP: Our target price is $72.
SL: To limit risk, place a stop loss below the shoulder of the IH&S pattern. This translates to $49. Note that this stop loss is on a closing basis.
Our target potential upside is almost 25% to 36% in the next 6 months.
- Entering at $53: For a risk of $4, our target reward is $19. This is a nearly 1: 5 Risk-Reward trade.
- Entering at $54: For a risk of $5, our target reward is $18. This is a nearly 1: 4 Risk-Reward trade.
- Entering at $57.50: For a risk of $8.5, our target reward is $14.50. This is a nearly 1: 2 Risk-Reward trade.
In other words, this trade offers nearly 2x to 5x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down with high volume from the current levels before completing the formation of the Inverted Head and Shoulders 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 the sector.
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