This Stock May Soon Break Out

The bank holding company based in Birmingham, Alabama, ServisFirst Bancshares, Inc. (NASDAQ: SFBS) seems to be gearing up for a surge as per its latest charts.

Bullish Indications

#1 Above MA: As you can see from the daily chart of SFBS below, the price is currently above the short-term moving average of 50-day SMA as well as the longer-term moving average of 200-day SMA. This implies that the bulls are still in control.

Daily Chart – SFBS

#2 Ascending triangle pattern: SFBS’s daily chart shows that the stock is currently forming an Ascending Triangle pattern. An Ascending Triangle pattern is a bullish pattern.

[hana-code-insert name=’adsense-article’ /]This is marked on the daily chart in blue color. The base of the triangle also generally acts a good support level.

#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.

#4 Support Level in Weekly Chart: The weekly chart of the stock shows that there is a good support level near $39.20.

This was the breakout level of the previously formed double bottom pattern. The stock had taken support at this level multiple times before bouncing up again.

Weekly Chart – SFBS

#5 Range Trading: The weekly chart shows that the stock is currently trading within a range. The Bollinger bands also show that a Bollinger squeeze is currently in progress. These are indications that the stock may soon break out.

#6 Uptrend unbroken: The stock’s uptrend is still unbroken as the stock has been making higher highs and higher lows. The parabolic SAR indicator is also currently below the price, indicating that the uptrend is still strong.

Recommended Trade (based on the charts)

Buy Levels: If you want to get in on this trade, you can purchase the shares of SFBS in either of the two scenarios

  • If the stock pulls back and reaches the bottom of the ascending triangle pattern in the daily chart. This translates to a daily close around $40.
  • If the stock breaks out of the ascending triangle pattern. This translates to a daily close above $44.50.

TP: Our target prices are based on the Ascending Triangle pattern. The first target price is $50 and the second target price is $65.

SL: To limit risk, place a stop loss at $36.20 (when entering at $40) and $39.50 (when entering at $44.50). Note that this stop loss is on a closing basis.

Our target potential upside is nearly 25% to 63% in the next 3-6 months.

  • Entry at $40 with SL of $36.20: For a risk of $3.80, the target rewards are $10 and $25. This is a nearly 1:3 and 1:7 risk-reward trade.
  • Entry at $44.50 with SL of $39.50: For a risk of $5, the target reward (TP#2) is $20.50. This is a nearly 1:4 risk-reward trade.

In other words, this trade offers nearly 3X to 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 ascending triangle 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 its sector.

Happy Trading!


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