The Fortune 500 company for midstream petroleum services, headquartered in Denver, Colorado, DCP Midstream LP (NYSE: DCP) seems to be ready for a price surge in the near-term.
Bullish Indications
#1 Ascending triangle pattern: DCP’s daily chart shows that the stock has currently broken out of an Ascending Triangle pattern. An Ascending Triangle pattern is a bullish pattern. This is marked on the daily chart in blue color. The base of the triangle generally acts as a good support level.
Daily Chart – DCP
#2 Cup and Handle pattern: The daily chart of DCP shows that the stock has broken out of a cup and handle pattern. This is marked in the chart in pink color. The cup and handle pattern is a consolidation and breakout pattern and a breakout from it indicates that the stock may move higher in the short term.
[hana-code-insert name=’adsense-article’ /]#3 Bullish Aroon: The value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30. This indicates bullishness.
#4 %K above %D: The %K line of the stochastic is currently above the %D line, indicating bullishness.
#5 MACD above Signal Line: The daily chart shows that the MACD line (blue color) is above the MACD signal line (orange color). This is a possible bullish setup.
#6 Above MAs: The stock is currently trading above both 50-day and 200-day SMA, indicating that the bulls are currently in control.
#7 Downtrend Broken: The weekly chart shows that the stock’s downtrend has been broken. The downtrend line is shown in purple color in the weekly chart below. The stock then consolidated for a while before starting its possible upmove.
Weekly Chart – DCP
#8 Cup and Handle breakout: In the weekly chart as well, there is a breakout from a cup and handle pattern. This is marked in pink color. This indicates bullishness.
The MACD line (blue color) is above the signal line (orange color) in the weekly chart. Aroon indicator is also having a bullish bias. All these indicate a possible bullish setup.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, you can purchase half the intended quantity of shares of DCP at the current price of $45.03 and the rest if the stock corrects to the breakout level of the cup and handle and ascending triangle pattern of the daily chart at around $42.
TP: Our target prices are $50 and $65 in the next 3-6 months.
SL: To limit risk, place a stop loss at $40.20. Note that this stop loss is on a closing basis.
Our target potential upside is nearly
- Entry at $42: For a risk of $1.80, our first target reward is $8 and the second target reward is $23. This is a 1:4 and 1:13 risk-reward trade.
- Entry at $45.03: For a risk of $4.83, our target reward (TP#2) is $19.97. This is a 1:4 risk-reward trade.
In other words, this trade offers nearly 4x to 13x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down from the cup and handle pattern. The sell-off of the stock could also be triggered in case of any negative news, overall weakness in the market, or any new government rules or regulatory changes in its sector.
Happy Trading!
Tara
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