The independent provider of aviation and expeditionary services to the global commercial, government and defense aviation industries, AAR Corp. (NYSE: AIR) seems to be poised for a price surge as per its latest charts.
#1 Falling Wedge Pattern: As you can see from the daily chart, the stock has been trading within a falling wedge pattern during the past few months. This is marked in the daily chart in blue color. Falling Wedge Patter is a bullish pattern. Once the stock moves up and breaks out from it, it has the potential to move further up.
#2 Good supports: The daily chart of AIR shows that the stock is near a long-term support level (marked as orange dotted line) as well as near the 200-day SMA. These all act as good support levels.[hana-code-insert name=’adsense-article’ /] #3 Bullish Stoch: The %K line is above the %D line of the stochastic and it has moved from oversold, indicating possible bullishness.
#4 Strong RSI: The RSI is nearing 50 and moving up. This is a bullish sign.
#5 Bullish CCI: The CCI has moved up from overbought levels and is currently above zero and moving up. This indicates possible bullishness.
#6 Unbroken Uptrend in Weekly Chart: As evident from the weekly chart, the stock is in an uptrend as it has been making higher highs and higher lows for the past several months.
The stock price is also above the 50-week and 200-week SMA. This is also a possible bullish sign.
#7 Flag Pattern: the stock was in a strong uptrend for the past several months. Then the stock started consolidating and was in a narrow range. This is a classic flag pattern, which is a continuation pattern. (this is marked in blue color lines in the weekly chart) Whenever a stock breaks out of the flag pattern, it typically continues its previous trend which is an uptrend in this case.
#8 RSI moving up: The RSI is near 50 and moving up on the weekly chart, indicating strength.
#9 Inside Bar: Currently, a bullish candlestick pattern of inside bar has been formed in the weekly chart. This is the sign of a possible trend reversal to a bullish bias.
#10 Oversold %R: Currently, William’s %R indicator is moving up from below -80. This is a bullish sign.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, you can purchase shares of AIR in two scenarios
- If the stock breaks out of the falling wedge pattern. This translates to a price of $47
- If the stock corrects to the bottom of the falling wedge pattern and is near the support level. This translates to a price 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 $39.50 (if entering when the stock reaches the bottom of the falling wedge pattern) or at $43.50 (if entering after falling wedge pattern breakout). 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 $2.50, our target rewards are $18 and $28. This is a 1:7 and 1:11 risk-reward trade.
- Entry at $47: For a risk of $3.50, our target rewards are $13 and $23. This is a 1:4 and 1:7 risk-reward trade.
In other words, this trade offers nearly 4x to 11x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down from the falling wedge support 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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