The diversified industrial growth company that operates through three segments: Industrial Products, Coatings, Sealants & Adhesives, and Specialty Chemicals, CSW Industrials Inc. (NASDAQ: CSWI) shows signs of an upcoming price surge according to its latest charts.
#1 Falling Wedge Breakout: The daily chart of CSWI shows that the stock was trading within a falling wedge pattern during the past few weeks. This is marked in the daily chart in pink color. Currently, the stock has broken out of this falling wedge pattern. A breakout from a bullish pattern like Falling Wedge Pattern shows that the stock has gained momentum and has the potential to move further up.
#2 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. The stock price is also above its 50-day and 200-day moving average which is another positive sign.
[hana-code-insert name=’adsense-article’ /]#3 Strong RSI: The RSI is above 50 and moving up. This indicates strength.
#4 Bullish Stochastic: The %K (blue) line of stochastic has crossed over the %D (Orange) line.
This cross called a signal line cross is usually an indication of a possible upmove in the near future.
#5 Flag Pattern: From the weekly chart, it is evident that CSWI was in a strong uptrend for the past several weeks.
Then the stock started consolidating and was in a narrow range.
This is a classic flag pattern, which is a continuation pattern.
This is marked in blue color in the weekly chart below. Whenever a stock breaks out of the flag pattern, it typically continues its previous trend which is an uptrend in this case.
#6 Uptrend Unbroken: As you can see from the weekly chart of the stock, the uptrend is still unbroken for the stock, as it has been forming higher highs and higher lows. The stock is also currently trading above its 50-week SMA, indicating overall bullishness.
#7 RSI moving up: The RSI was oversold and is now moving upwards in the weekly chart, indicating a bullish bias.
#8 Support at Fibonacci Level: The weekly chart shows that the stock has been in an uptrend after which it has been correcting. It is now near the 61.80% Fibonacci retracement level of this move. Usually, after an up-move, stocks retrace to any of the key Fibonacci levels before resuming its upmove. So, this 61.80% retracement level seems like a good support area.
However, there is also indication of a possible correction in the near-term as the latest candle in the daily chart is a doji, which foretells a possible short-term reversal.
Recommended Trade (based on the charts)
Buy Price: If you want to get in on this trade, the ideal buy level is in two scenarios
- If the stock corrects to falling wedge pattern breakout level of around $45.
- If the stock breaks out above $48. This is marked as an orange dotted line in the daily chart.
TP: Our target prices are $60 and $75 in the next 4-6 months
SL: To limit risk, place a stop-loss at $41.50. Note that this stop loss is on a closing basis.
Our target potential upside is almost 25% to 67% in the next 4-6 months.
- Entry at $45: For a risk of $3.50, our target rewards are $15 and $30. This is a nearly 1:4 and 1:9 risk-reward trade.
- Entry at $48: For a risk of $6.50, our target rewards are $12 and $25. This is a nearly 1:2 and 1:4 risk-reward trade.
In other words, this trade offers nearly 2x to 9x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down with high volume from the falling 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.
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