The Texas-based bank holding company, International Bancshares Corp (NASDAQ: IBOC) seems to be poised for a price surge as per its latest charts.
#1 Channel and Flag: As you can see from the daily chart, the stock has been trading within a channel during the past several weeks.
The stock was in a strong uptrend for the past several months.
Then the stock started consolidating and was in a narrow range.
This is a classic flag pattern, which is a continuation pattern (flagpole is marked in orange line in the daily chart).
Whenever a stock breaks out of the flag pattern, it typically continues its previous trend which is an uptrend in this case.
#2 MACD Above Signal Line: The daily chart shows that the MACD line (blue color) is currently above the signal line (orange color). This is a possible bullish setup.
#3 RSI above 50: In the daily chart, the RSI is above 50 and moving up. This indicates possible bullishness.
#4 Support level: The stock has currently taken support near its 200-day SMA. This seems like a good support point to move up.
#5 Unbroken Uptrend in Weekly Chart: As seen from the weekly chart, the stock has been on an uptrend as it has been making higher highs and higher lows for the past several months. The stock price is also above the 50-week and 200-week SMA. This points to possible bullishness.
#6 Support at Fibonacci Levels: The weekly chart shows that the stock had been on an uptrend from February 2016 and formed a top in December 2016. After that, the stock corrected and took support near the 61.8% Fibonacci retracement level of the move from $21.05 to $42. Usually, after an up-move, stocks retrace to any of the key Fibonacci levels before surging back again. Currently, the stock has moved up, taken support near the 78.6% Fibonacci retracement level, and then bounced up again. This 78.6% Fibonacci retracement level of the move seems like a good support area.
However, there are also signs that the stock may correct slightly in the near term.
- %K below %D: The stochastic oscillator in the weekly chart shows that the %K line has crossed below %D line. This usually points to a short-term correction.
- RSI moving down: The weekly chart shows that the RSI is moving down. This also points to a possible correction.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal price for purchasing the shares of IBOC is in two scenarios.
- If it corrects to the 78.6% Fibonacci retracement level in the weekly chart. This translates to $37.50.
- If it breaks out of the long-term resistance level. This translates to a price of around $42.50.
TP: Our target prices are $50 and $60 in the next 3-6 months.
SL: To limit risk, place stop-loss at $34.50 (when entering near $37.50) and $37.40 (when entering near $42.50). Note that stop loss is on a closing basis.
Our target potential upside is 33% to 60% in the next 3-6 months.
- Entry at $37.50: For a risk of $3, our target rewards are $12.50 and $22.50. This is a 1:4 and 1:8 risk-reward trade.
- Entry at $42.50: For a risk of $5.10, our target reward (TP#2) is $17.50. This is a 1:3 risk-reward trade.
In other words, this trade offers nearly 3x to 8x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down from the Fibonacci support level with a high volume. 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.