The business development company specializing in long-term equity and debt investments in small and lower middle market companies, Main Street Capital Corporation (NYSE: MAIN) seem poised for a price surge according to its latest charts.
Bullish Indications
#1 Wedge Pattern: The daily chart of MAIN shows that the stock has been trading within a wedge pattern for almost a year. This is marked in dark blue color in the daily chart below. Currently, the stock is near the top edge of this wedge pattern. This is a good point for the stock to break out.
Daily Chart – MAIN
#2 Long Tailed Hammer Candle: As you can see from the daily chart, there was a long-tailed Hammer candle formed in the recent times.
[hana-code-insert name=’adsense-article’ /]This indicates that a lot of buying was done around this level, making it a good support level.#3 IH&S Pattern: As you can see from the daily chart, the stock has formed an Inverted Head and Shoulders (IH&S) pattern.
This is marked in orange color. An IH&S pattern is a strong bullish pattern.
After the breakout from the IH&S pattern, the stock may move higher in the short term.
#4 MACD Moving Above Zero Line: The MACD Line (blue color) is about to cross above the zero line, which is a bullish sign.
#5 RSI Moving Up: The weekly chart of MAIN shows that RSI is moving up after reaching oversold levels. This is yet another bullish sign.
Weekly Chart – MAIN
#6 Weekly Support at Fibonacci Level: The weekly chart of MAIN shows that the stock had been on an uptrend from $27.66 in January 2016 and formed a top at $40.71 around November 2017. Since then, the stock has been correcting. It has now taken support at the 61.8% Fibonacci retracement level of this move. Typically, after an up-move, stocks retrace to any of the key Fibonacci levels before surging back again. So, this 61.8% retracement level seems like a good support area.
#7 Buy Area: The weekly chart of the stock shows that a long-tailed hammer was formed during the week ending February 5, 2018. The formation of this hammer indicates a demand area. The stock had historically taken support near this buy area as shown in the chart.
Recommended Trade (based on the charts)
Buy Price: If you want to get in on this trade, you can purchase shares of MAIN in either of these 2 scenarios
- If the stock corrects to buy area of around $36.
- If the stock breaks out above IH&S Pattern, around $37.50.
TP: Our first target prices are $45 and $50 in the next 4-6 months.
SL: To limit risk, place a stop loss at $34.20. Note that this stop loss is on a closing basis.
Our target potential upside is almost 20% to 39% in the next 4-6 months.
- Entry at $36: For a risk of $1.80, our target rewards are $9 and $14. This is a 1:5 and 1:8 risk-reward trade.
- Entry at $37.5: For a risk of $3.30, our target rewards are $7.5 and $12.50. This is a 1:2 and 1:4 risk-reward trade.
In other words, this trade offers nearly 2x to 8X more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down with high volume from the wedge 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.
Happy Trading!
Tara
[hana-code-insert name=’investorplace-article’ /]