The pharmaceutical company based in Irving, Texas that focuses on investigating experimental oral antioxidative and anti-inflammatory drugs, Reata Pharmaceuticals Inc. (NASDAQ: RETA) 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 weeks. This is marked in the daily chart in orange color. A 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. Currently, the stock has broken out of the falling wedge pattern, which is a bullish sign.
#2 Good supports: The daily chart of RETA shows that the stock has taken support near the trendline. The stock is also trading above its 50-day as well as 200-day SMA. These are all bullish signs.[hana-code-insert name=’adsense-article’ /]#3 MACD above Signal Line: The daily chart shows that the MACD (light blue color) is currently above the MACD signal line (orange color).
This is a possible bullish indication.
#4 RSI Strong: Relative strength index (RSI) is currently above 50.
This indicates the strength of the current upmove.
#5 Bullish Stoch: The %K line of the stochastic is above the %D line, indicating possible bullishness.
#6 Flag Pattern: As seen from the weekly chart of RETA, 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 pink color 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 which is a possible bullish sign.
#7 RSI moving up: The RSI is above 50 and moving up on the weekly chart of RETA, indicating strength.
#8 Fibonacci Support: Usually, after an up-move, stocks retraces to any of the key Fibonacci levels before surging back again. RETA has currently taken support at 50% Fibonacci support level as seen in the weekly chart. So, this seems like a good support area for the stock to bounce upwards.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, you can purchase shares of RETA at the current price of $67.08.
TP: Our target prices are $80 and $90 in the next 4 to 6 months.
SL: To limit risk, place the stop loss below $62.80. Note that stop loss is on a closing basis.
Our target potential upside is 19% to 34% in the next 4-6 months. For a risk of $4.28, our target rewards are $12.92 and $22.92. This is a 1:3 and 1:5 risk-reward trade.
In other words, this trade offers nearly 3x to 5x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down from the falling wedge pattern and trendline 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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