The American financial services holding company based in Cincinnati, Ohio, American Financial Group Inc. (NYSE: AFG) seem 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 weeks. 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 Channel Support: The stock has been trading within a channel for the past several months. This channel is marked on the chart in blue dotted lines. The stock has currently taken support at the lower end of this channel. This seems like a good support level.
[hana-code-insert name=’adsense-article’ /] #3 MACD Cross 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 AFG, the stock is currently trading above its 200-day SMA.
This implies that the bulls are still in control.
#5 Strong RSI: The daily chart shows that RSI is above 50 and moving up, indicating strength.
#6 %K above %D: The %K line is above the %D line in the stochastic. This is a bullish sign.
#7 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 above its 50-week as well as 200-week SMA and the RSI is above 50 and moving up. These are all bullish signs.
#8 Fibonacci Support: After an upmove, stocks usually retrace to key Fibonacci levels before resuming its upmove. Currently, the stock has taken support near the 61.8% Fibonacci retracement level before moving up again. This seems like a good support area.
#9 Flag Pattern: The stock was in a strong uptrend, after which it started consolidating and was in a narrow range. This is a classic flag pattern, which is a continuation pattern. This pattern is marked in purple color. Once the stock breaks out of the flag pattern, it has the potential to move further up.
#10 Oversold Stochastic: The weekly chart shows that the stochastic is oversold. The %K line is also above the %D line. All these indicate that an upmove may be imminent.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for AFG is at the current price of $109.62.
TP: Our target price is $130 in the next 2-4 months.
Note: If the stock price fails to sustain above $115, you can exit half the purchased quantity of stock at that level.
SL: To limit risk, place stop-loss at $104.2. Note that the stop loss is on a closing basis.
Our target potential upside is 18% in the next 4 months. For a risk of $5.42 our target reward is $20.38. This is a 1:4 risk-reward trade.
In other words, this trade offers nearly 4x 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.
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