One of the leading independent providers of supply chain management and logistics solutions designed to drive efficiencies and reduce costs for the oil and natural gas industry, Solaris Oilfield Infrastructure Inc. (NYSE: SOI) seem to be poised for a price surge after a correction as per its latest charts.
#1 Downtrend Channel Breakout: As you can see from the daily chart, the stock has been trading within a downtrend channel during the past few months. This is marked in the daily chart in blue color. Currently, the stock has broken out of the downtrend channel. Once the stock breaks out from a downtrend channel, it has the potential to move further up.
#2 Strong RSI: The daily chart shows that RSI is above 50 and moving up, indicating strength.
#3 Price above MAs: The price is currently above both the short-term moving average of 50-day SMA and the longer-term moving average of 200-day SMA. This is a bullish sign.
This is a continuation pattern and is characterized by two converging trendlines connecting a series of sequential peaks and troughs.
This is marked on the daily chart as pink dotted lines. This is also a bullish sign.
#5 %K above %D: The %K line (blue color) is currently above the %D line (orange color) in the stochastic. This is a bullish sign.
However, stochastic is now near overbought levels, indicating that the price may move down in the short term before starting the upmove again.
#6 MACD above Signal Line: The daily chart of SOI shows that the MACD (light blue color) is currently above the MACD signal line (orange color). This typically indicates a bullish setup.
#7 Downtrend Broken in Weekly Chart: As evident from the weekly chart, the stock was in a downtrend for the past few weeks. This is marked in pink dotted line. The stock has currently broken out of the downtrend and looks ready for a new upmove.
#8 MACD above Signal Line: The weekly chart shows that the MACD line (blue color) is above the MACD signal line (orange color). This is a possible bullish setup.
#9 Flag Pattern: As seen from the weekly chart, the stock was in an uptrend after which it started consolidating and was in a narrow range. This is a classic flag pattern, which is a continuation pattern. The flag pattern is marked in purple color lines in the daily chart. Whenever a stock breaks out of the flag pattern, it typically continues its previous trend which is an uptrend in this case. Currently, the stock has broken out of the flag pattern.
#10 Strong RSI: The weekly chart shows that the RSI has moved up after reaching oversold levels. This is a possible bullish sign.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for SOI is if it corrects to the breakout level of the downtrend channel at around $17. For those with a higher risk appetite, you can enter long positions at the current price of $18.47.
TP: Our target prices are $25 and $35 in the next 4-6 months.
SL: To limit risk, place stop-loss at $14.80. Note that the stop-loss is on a closing basis.
Our target potential upside is 35% to 105% in the next 4 to 6 months.
- Entry at $17: For a risk of $2.20, our target rewards are $8 and $18. This is a 1:4 and 1:8 risk-reward trade.
- Entry at $18.47: For a risk of $3.67, our target rewards are $6.53 and $16.53. This is a 1:2 and 1:5 risk-reward trade.
In other words, this trade offers nearly 2x to 8x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down from the downtrend channel breakout level 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.