The Johnson City-based industrial parts manufacturing company, NN, Inc. (NASDAQ: NNBR) seems to be ready for an upmove in the near term as per its latest charts.
Bullish Indications
#1 Falling Wedge Pattern: The daily chart shows that the stock has been forming a falling wedge pattern during the past several months. This is marked in orange color lines in the daily chart. The stock is currently moving up after taking support at the bottom of this falling wedge pattern. If the stock breaks out of the top of the falling wedge pattern, it can move higher in the near-term.
Daily Chart – NNBR
#2 Oversold RSI: The daily chart shows that the RSI is currently oversold and is moving upwards. This is a bullish sign.
[hana-code-insert name=’adsense-article’ /] #3 Strong Stochastics: The stochastics oscillator shows that the %K (blue) line is currently above the %D (orange) line and moving up.This indicates a possible reversal from the current downtrend.
There is also a bullish divergence between the price and the stochastic.
While the stock made a lower low, the stochastic formed a higher low.
#4 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.
#5 Fibonacci Support Level: Usually, after an up-move, stocks retraces to any of the key Fibonacci levels before surging back again. NNBR has currently 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.
Weekly Chart – NNBR
#6 Oversold RSI: The RSI in the weekly chart is currently oversold, indicating possible upmove in the near-term.
#7 Bullish Engulfing: The weekly chart shows that the latest candlestick pattern is bullish engulfing. This is a sign of possible bullishness.
#8 Oversold Stoch: The stochastic is oversold with the %K line above the %D line. This is a bullish sign.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, you can buy half the intended quantity of shares at the current price of $18.95. The rest can be purchased in two scenarios
- If the stock corrects to the bottom of the wedge at around $18.
- If the stock breaks out of the falling wedge pattern and closes above $20.
TP: Our target prices are $25 and $30 in the next 3-6 months.
SL: To limit risk, place a stop loss at $17.40. Note that this stop loss is on a closing basis.
Our target potential upside is 25% to 67% in the next 3-6 months.
- Entry at $18: For a risk of $0.60, our target rewards are $7 and $12. This is a nearly 1:12 and 1:20 risk-reward trade.
- Entry at $18.95: For a risk of $1.55, our target rewards are $6.05 and $11.05. This is a 1:4 and 1:7 risk-reward trade.
- Entry at $20: For a risk of $2.60, our target rewards are $5 and $10. This is a 1:2 and 1:4 risk-reward trade.
In other words, this trade offers nearly 2x to 20x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down from the falling edge 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 its sector.
Happy Trading!
Tara
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