The American publicly-traded company which sells residential and non-residential roofing products as well as related building products in North America, Beacon Roofing Supply, Inc. (NASDAQ: BECN) seem to be poised for a price surge as per its latest charts.
#1 Double Bottom Pattern: From the daily chart of BECN, we can see that the stock is currently forming a Double Bottom pattern. This is marked in the daily chart in orange color. A double bottom pattern is a strong bullish pattern and indicates a possible upmove in the short term.
#2 RSI –Price Bullish Divergence: There is a bullish divergence between RSI and price. While the price formed a lower low, the RSI formed to a higher low. This is marked as pink dotted lines in the daily chart. The RSI is also moving up from oversold levels. This is a bullish sign.[hana-code-insert name=’adsense-article’ /]#3 Channel Breakout: The stock has currently broken out of a downtrend channel which is marked as blue lines in the daily chart.
This is a bullish sign.
#4 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.
#5 %K above %D: The %K line is above the %D line in the stochastic.
This is a bullish sign.
#6 Near long-term support level: The stock is currently near a long-term support level which is marked as purple dotted lines in the weekly chart. This seems like a good level for a bounceback.
#7 Bullish Candle: As you can see from the weekly chart, BECN has formed a big green candle in the latest week. This is a strong bullish candle, indicating that there was demand from the support area.
#8 RSI –Price Bullish Divergence: The weekly chart shows that there is a bullish divergence between RSI and price. While the price had formed a lower low, RSI had formed to a higher low. This is marked as pink dotted lines in the chart. The RSI is also moving up from near oversold levels. This indicates that an upmove may be imminent.
#9 CCI moving up: The weekly chart shows that the CCI is moving up from below -100, indicating bullishness.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy price for BECN if it breaks out above the double bottom pattern at around $47.
Alternatively, you can also purchase the stock if it corrects and reaches near the channel breakout level of around $42.
TP: Our target prices are $60 and $70 in the next 4-6 months.
SL: To limit risk, place stop-loss at $42.80 (when entering near $47) and $38.80 (when entering near $42). Note that stop loss is on a closing basis.
Our target potential upside is 28% to 67% in the next 4-6 months.
- Entry at $42: For a risk of $3.20, our target rewards are $18 and $28. This is a nearly 1:6 and 1:9 risk-reward trade.
- Entry at $47: For a risk of $4.50, our target rewards are $13 and $23. This is a nearly 1:3 and 1:5 risk-reward trade.
In other words, this trade offers nearly 3x to 9x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down from the channel and double bottom 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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