The specialty pharmaceutical company that focuses on the development and commercialization of products for the treatment of central nervous system diseases, Supernus Pharmaceuticals Inc. (NASDAQ: SUPN) seem poised for a price surge according to its latest charts.
[hana-code-insert name=’adsense-article’ /]Bullish Indications
#1 Falling Wedge Bottom Support: The daily chart of SUPN shows that the stock has been trading within a falling wedge pattern for the past few months.
This is marked in purple color in the daily chart below.
Currently, the stock has taken support near the bottom of this falling wedge pattern.
This usually acts as a good point for the stock to bounce back from.
The price may reach the top of the falling wedge pattern and break out of the pattern in the near-term.
#2 Oversold RSI in Daily: The daily chart shows that RSI is currently at oversold levels. This shows that the selling momentum is weakening and the trend reversal might be around the corner. This is another bullish sign.
#3 Pennant Pattern: As seen from the weekly chart below, the stock was in a strong uptrend from February 2016. Then the stock started consolidating and was in a narrow range. This is a classic pennant pattern, which is a continuation pattern. Whenever a stock breaks out of the pennant pattern, it typically continues its previous trend which is an uptrend in this case.
#4 Weekly Support at Fibonacci Level: The weekly chart of NSIT shows that the stock had been on an uptrend from January 2016 and formed a top in June 2018. Since then, the stock has been correcting. It is now near the 61.8% Fibonacci retracement level of this move. Usually, after an up-move, stocks retrace to any of the key Fibonacci levels before surging back again. So, this retracement level seems like a good support area.
#5 RSI Nearing Oversold: From the weekly chart of SUPN, it is evident that the RSI is near oversold levels. This indicates that the stock may reverse to upside soon.
Recommended Trade (based on the charts)
Buy Price: If you want to get in on this trade, the ideal buy levels for SUPN is once the stock breaks out from the falling wedge pattern at around $45.75. But for those with a high risk appetite, you can purchase half the intended quantity of shares of SUPN at the current price of $42.24.
TP: Our first target price is $50 and $65 in the next 4 to 6 months.
SL: To limit risk, place a stop loss at $39.40. Note that this stop loss is on a closing basis.
Our target potential upside is almost 18% to 54% in the next 4-6 months.
- Entry at $42.24: For a risk of $2.84, our first target reward is $7.76 and the second target reward is $22.76. This is a nearly 1:3 and 1:8 risk-reward trade.
- Entry at $45.75: For a risk of $6.35, our target reward (TP#2) is $19.25. This is a 1:3 risk-reward trade.
In other words, this trade offers nearly 3x to 8x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down with high volume from the falling wedge pattern. 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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