The well-known semiconductor manufacturing company which manufactures and supplies production tools, modules, and subsystems, Ultra Clean Holdings Inc. (NASDAQ: UCTT) seems to be poised for a price surge as per its latest charts.
#1 Falling Wedge Breakout: As you can see from the daily chart, the stock has been trading within a falling wedge pattern during the past few months. This is marked in the daily chart in purple color. Currently, the stock has broken out of the falling wedge pattern. A Falling Wedge Pattern is a bullish pattern. Once the stock breaks out from it, it has the potential to move further up.
#2 MACD Above Signal Line: The daily chart shows that the MACD line (blue color) has crossed above the signal line (orange color). This is a possible bullish setup.
#4 Above MA: In the daily chart of UCTT, the stock is currently trading above 50-day SMA. This implies that the bulls are in control.
#5 Hammer: The latest candle in the daily chart is a hammer. This is usually a bullish indication.
#6 Unbroken Uptrend in Weekly Chart: As evident from the weekly chart, the stock is in an uptrend as it has been making higher highs and higher lows for the past several months. The stock is also above its 200-week SMA. These are all bullish signs.
#7 Support At Fibonacci Level: Usually, after an up-move, stocks retraces to any of the key Fibonacci levels before surging back again. UCTT had taken support at the 38.2% Fibonacci support level of the upmove, as seen in the weekly chart. This seems like a good point to bounce back from.
#8 Bullish Stochastic: The %K (blue) line of stochastic is currently above the %D (Orange) line. This is a possible bullish indication.
#9 Oversold RSI: The RSI is near oversold levels in the weekly chart, indicating bullishness.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for UCTT is if it corrects to around $16. For those who prefer a speedier entry, you can buy half the intended quantity of shares at the current price of $17.87.
TP: Our target prices are $27 and $35 in the next 4-6 months.
SL: To limit risk, place stop-loss at $14.80. Note that the stop loss is on a closing basis.
Our target potential upside is 51% to 119% in the next 4-6 months.
- Entry at $16: For a risk of $1.20, our target rewards are $11.00 and $19.00. This is a 1:9 and 1:16 risk-reward trade.
- Entry at $17.87: For a risk of $3.07, our target rewards are $9.13 and $17.13. This is a 1:3 and 1:6 risk-reward trade.
In other words, this trade offers nearly 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 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.