The American specialty retailer of children’s apparel and accessories under the brand names Children’s Place, Place, and Baby Place, Childrens Place Inc. (NASDAQ: PLCE) seems to be ready for a price surge in the near-term.
#1 Trend Channel Breakout: PLCE’s daily chart shows that the stock has currently broken out of a trend channel. This channel is marked on the daily chart in blue color. A breakout from a trend channel typically is a bullish indication.
#2 Bullish Aroon: The value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30. This indicates bullishness.[hana-code-insert name=’adsense-article’ /]#3 Above MAs: The stock is currently trading above both 50-day and 200-day SMA, indicating that the bulls are currently in control.
#4 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.
#5 Bullish Stoch: The %K line of the stochastic is currently above the %D line, indicating bullishness.
#6 Bullish ADX and DI: The ADX indicator in the weekly chart shows bullishness because (+DI) is greater than (-DI), ADX and (+DI) are above (-DI), and ADX has started rising from below both (+DI) and (-DI).
#7 IH&S breakout: In the weekly chart, the stock has currently broken out of an IH&S pattern. This is marked in orange color in the chart. A breakout from a bullish pattern like IH&S pattern indicates that the stock could move higher in the short term.
#8 Other Bullish Indications: The MACD line (blue color) is above the signal line (orange color) in the weekly chart. The stochastic shows that %K is above the %D line. The stock is also currently trading above both 50-week and 200-week SMA. 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 by half the intended quantity of shares of PLCE at the current price of $151.60. The remaining shares can be purchased if the stock corrects back to the breakout level of the trend channel at around $148.50.
TP: Our target prices are $165 and $180 in the next 3-6 months.
SL: To limit risk, place a stop loss at $140. Note that this stop loss is on a closing basis.
Our target potential upside is nearly 8% to 21% in the next 3-6 months.
- Entry at $148.50: For a risk of $8.50, our first target reward is $16.50 and the second target reward is $31.50. This is a 1:2 and 1:4 risk-reward trade.
- Entry at $151.60: For a risk of $11.60, our second target reward is $18.40. This is a 1:2 risk-reward trade.
In other words, this trade offers nearly 2x to 4x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down from the trend channel and IH&S 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.
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