The designer, manufacturer, and marketer of high-end tools and equipment for professional use in the transportation industry including the automotive, heavy duty, equipment, marine, aviation, and railroad industries, Snap-on Incorporated (NYSE: SNA) seems to be getting ready for a price bump as per the latest charts.
Bullish Move – Chart Indications
#1 Falling Wedge Breakout: As you can see from the daily chart of SNA, the stock had been forming two falling wedge patterns for the past few months. This is marked as blue and pink color lines. The stock has currently broken out of the falling wedge pattern after taking support at the bottom of the wedge. A falling wedge is a bullish pattern and a breakout from it implies that the stock may move higher in the short term.
#2 RSI Strong: Relative strength index (RSI) is currently above 50 after moving up from oversold levels. This indicates the strength of the current upmove.
#4 CCI Above 50: The CCI has moved from below zero and is currently above 50, indicating possible bullishness.
#5 Double Bottom: In the weekly chart of SNA, a double bottom pattern is being currently formed.
This is shown in the figure in purple color. A Double bottom pattern is a bullish reversal pattern, indicating that the stock would possibly move upwards shortly.
#6 Oversold RSI: In the weekly chart, the RSI is oversold and currently moving up, indicating strength.
#7 Long-term support: There is a long-term support level close by for the stock, marked as orange dotted lines. This seems like a good level for the stock price to bounce back from.
#8: Bullish CCI: In the weekly chart, CCI is moving up from below -100. This is a bullish sign as well.
#9 Rising Stochastic: The stochastic is moving up from below 20, indicating possible bullishness.
#10 Hammer: There was a hammer candlestick formed during the previous week. This is a bullish candle and shows that it is a demand area.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, purchase half the intended quantity of shares of SNA at the current price of $147.75. The other half of the shares can be purchased if the stock corrects to near the bottom of the wedge at around $140.
TP: Our target prices are $160 and $180 in the next 4-6 months.
SL: To limit risk, place a stop loss below $137.50. Note that the stop loss is on a closing basis.
Our target potential upside is 14% to 29% in the next 4-6 months.
- Entry at $140: For a risk of $2.50, our first target reward is $20 and second target reward is $40. This is a nearly 1:8 and 1:16 risk-reward trade.
- Entry at $147.75: For a risk of $10.25, our target reward (TP#2) is $32.25. This is a nearly 1:3 risk-reward trade.
In other words, this trade offers 3x to 16x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down from the falling wedge pattern with 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 energy sector.
TaraTake the $20 Trading Challenge [sponsor]
Give us $20 – $19.95, actually – and we’ll give you 20 powerful trades. That’s a month’s worth of trading. 5 new trades each week, handpicked by Ken Trester – one of the longest-lasting & most successful options traders of all time. So, if you’re interested, - click here to avoid missing out.