The fully-regulated, natural-gas-only distributor engaged primarily in the regulated natural gas distribution and pipeline businesses, as well as other nonregulated natural gas businesses, Atmos Energy Corporation (NYSE: ATO) shows signs of an upcoming price surge according to its latest charts.
#1 Uptrend Channel: The daily chart of ATO shows that the stock has been trading within an uptrend channel for the past few months. This channel is marked in the daily chart in purple color. Currently, the stock is trading near the middle of this channel. Once the stock breaks out of the top of the channel, which is also a resistance level, it has the potential to surge ahead.
#2 Double Bottom Breakout in Daily chart: In the daily chart of ATO, the stock had recently broken out of a double bottom pattern.[hana-code-insert name=’adsense-article’ /]This pattern is marked in the chart in orange color.
The stock is currently consolidating near the breakout level of the pattern.
A double bottom pattern is a strong bullish pattern and indicates that the stock may move higher in the short term.
#3 Above MAs: The stock is currently trading above both 50-day and 200-day SMA, indicating the overall bullishness of the stock.
#4 Strong RSI: The RSI is above 50, indicating strength.
#5 Hammer: The latest candle is a hammer which is a bullish reversal candle. This implies that the stock may move higher soon.
#6 MACD above Signal Line: As you can see from the weekly chart, the MACD line (blue color) is currently above the signal line (orange color), indicating a bullish bias.
#7 Strong RSI: The RSI is above 50 and moving up, indicating strength.
#8 Fibonacci Support: The stock had taken support at the 38.2% Fibonacci retracement level before continuing its upmove.
Note: There is a long-term resistance level on the weekly chart marked as pink dotted lines. The ideal buy level is above this level.
Recommended Trade (based on the charts)
Buy Price: If you want to get in on this trade, the ideal buy level for ATO is in 2 scenarios
- If the price breaks out of the channel, at around $93
- If the price corrects to the lower end of the channel at around $87.
For those with higher risk appetite, you can purchase half the intended quantity of shares of ATO at the current price of $90.62.
TP: Our target prices are $100 and $110 in the next 3-6 months.
SL: To limit risk, place a stop loss at $88.60 (entering near $93) and $86 (entering near $87). Note that this stop loss is on a closing basis.
Our target potential upside is 10% – 21% in the next 3-6 months.
- Entry at $87: For a risk of $1, our target rewards are $13 and $23. This is almost 1:13 and 1:23 risk-reward trade.
- Entry at $90.62: For a risk of $2.02, our target rewards are $9.38 and $19.38. This is almost 1:5 and 1:10 risk-reward trade.
- Entry at $93: For a risk of $4.40, our target rewards are $7 and $17. This is almost 1:2 and 1:4 risk-reward trade.
In other words, this trade offers nearly 2x to 23x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down with high volume from the channel support level. 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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