The software company that powers the practice of SecOps by delivering shared visibility, analytics, and automation to unite security, IT, and DevOps teams, Rapid7 Inc. (NASDAQ: RPD) seems to be ready for an upmove after a brief pullback according to its latest charts.
#1 Double Bottom Breakout in Daily Chart: As you can see from the daily chart of RPD below, the stock had recently broken out of a Double bottom pattern on August 23, 2018. A Double bottom pattern is a bullish reversal pattern, indicating that the stock could possibly move upwards. Currently, the stock seems to be getting ready to retest the double bottom breakout level before continuing its upmove.
#2 Price Above 50 and 200 day SMA: The stock’s daily chart shows that the price is currently above the 50-Day SMA as well as 200-day SMA. This shows the strength of the bulls.[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 MACD above Signal Line: In the daily chart, the MACD line (light blue color) is currently above the MACD signal line (orange color) which is typically considered as a potential buy signal.
#5 Flag Breakout in Weekly Chart: As you can see from the weekly chart of RPD, the stock was in a strong uptrend, after which it started consolidating and was in a narrow range.
This is a classic flag pattern and is marked in the chart below in purple color. A Flag is a continuation pattern. Whenever a stock breaks out of the flag pattern, it typically continues its previous trend (uptrend in this case). However, a retest to the flag pattern’s breakout level usually happens before resuming the trend. Currently, the stock has broken out of the flag pattern and looks ready for a retest.
#6 MACD above Signal Line: In the weekly chart as well, the MACD line (light blue color) is currently above the MACD signal line (orange color), implying possible bullishness.
#7 %K above %D: The %K line of the stochastic is currently above the %D line, indicating bullishness.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, you can purchase shares of RPD when it pulls back to the breakout level of the double bottom and flag pattern at around $34.
TP: Our target prices are $42 and $50 in the next 3-6 months.
SL: To limit risk, place a stop loss at $31.50. Note that this stop loss is on a closing basis.
Our target potential upside is nearly 24% to 47% in the next 6 months. For a risk of $2.50, our target rewards are $8.00 and $16.00. This is a 1:3 and 1:6 risk-reward trade.
In other words, this trade offers nearly 3X to 6X more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks with high volume from the pattern breakout levels. 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.
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