The well-known manufacturer of components for original equipment manufacturers (OEM) in the building products industry, Quanex Building Products Corporation (NYSE: NX) seems to be getting ready for a price bump as per the latest charts.
Bullish Move – Chart Indications
#1 Falling Wedge Breakout: As you can see from the daily chart of NX, the stock has been forming a falling wedge pattern for the past few months. This is marked as purple color lines. The stock has currently broken out of the falling wedge pattern after taking support at the bottom of the wedge. A falling wedge is a bullish pattern and a breakout from it implies that the stock may move higher in the short term.
#2 RSI Strong: Relative strength index (RSI) is currently above 50 after moving up from oversold levels. This indicates the strength of the current upmove.[hana-code-insert name=’adsense-article’ /] #3 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.
#4 Bullish Stoch: The %K line is above the %D line of the stochastic and it has moved from oversold, indicating possible bullishness.
#5 Above MAs: The stock is currently trading above both 50-day as well as 200-day SMA.
This means that the bulls are currently in control.
#6 Double Bottom Breakout: In the weekly chart of NX, we can see that the stock has broken out of a double bottom pattern. This pattern is shown in the figure in pink color. A double bottom pattern is a bullish reversal pattern, indicating that the stock could possibly move upwards shortly.
#7 Bullish RSI: In the weekly chart, the RSI is oversold and currently moving up, indicating strength. There was also a bullish divergence between RSI and price, after which the stock moved upwards.
#8 Bullish Stochastic: The stochastic is moving up from oversold levels. The %K is also above %D. All these indicate possible bullishness.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, purchase half the intended quantity of shares of NX at the current price of $19.45. The other half of the shares can be purchased if the stock corrects to the breakout level of the wedge at around $18.40.
TP: Our target prices are $24 and $30 in the next 4-6 months.
SL: To limit risk, place a stop loss below $16.90. Note that the stop loss is on a closing basis.
Our target potential upside is 23% to 63% in the next 4-6 months.
- Entry at $18.40: For a risk of $1.50, our first target reward is $5.60 and second target reward is $11.60. This is a nearly 1:4 and 1:8 risk-reward trade.
- Entry at $19.45: For a risk of $2.55, our first target reward is $4.55 and second target reward is $10.55. This is a nearly 1:2 and 1:4 risk-reward trade.
In other words, this trade offers 2x to 8x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down from the falling wedge 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 the energy sector.
Tara[hana-code-insert name=’MMPress’ /]