The energy holding company based in the U.S. state of New Mexico, PNM Resources Inc. (NYSE: PNM) shows signs of an upcoming price surge according to its latest charts.
#1 Consolidation and Breakout: The daily chart shows that the stock has been trading within a range since the past several months. This area is marked as a green color rectangle in the daily chart. Currently, the stock has broken out of this range, indicating possible bullishness.
#2 Above MA: The stock is currently trading above its 50-day SMA as well as 200-day SMA. This indicates overall bullishness for the stock.[hana-code-insert name=’adsense-article’ /]#3 IH&S Pattern: The daily chart shows that the stock had formed an Inverted Head and Shoulders (IH&S) pattern over the past several months and has currently broken out from it.
This is a strong bullish pattern and is marked in orange color lines.
After breakout from an IH&S pattern, the stock typically moves higher in the short term.
#4 Strong RSI: RSI is above 50, indicating strength.
#5 Bullish Aroon: The value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30 in the daily chart.
This indicates possible bullishness.
#6 Unbroken uptrend: The weekly chart shows that the stock is in an unbroken uptrend as it has been forming higher highs and higher lows during the past several months.
#7 MACD above Signal Line: As you can see from the weekly chart, the MACD line (blue color) is currently above the signal line (orange color), indicating a bullish bias.
Recommended Trade (based on the charts)
Buy Price: If you want to get in on this trade, you can purchase shares of PNM in two scenarios.
- If it corrects back to the breakout level of the IH&S pattern at around $41.20.
- If it closes above the long-term resistance level at around $46.
Note: For those with higher risk appetite, you can buy one forth the intended quantity of shares of PNM at the current price of $43 with a stop loss of $42.70.
TP: Our target prices are is $50 and $60 in the next 3-6 months.
SL: To limit risk, place a stop loss at $37.80 (for entry near $41.20) and $42.70 (for entry near $46). Note that the stop loss is on a closing basis.
Our target potential upside is nearly 21% to 46% in the next 3-6 months.
- Entry at $41.20: For a risk of $3.40, our target rewards are $8.80 and $18.80. This is a 1:3 and 1:6 risk-reward trade.
- Entry at $46: For a risk of $3.30, our target reward (TP#2) is $14. This is a 1:4 risk-reward trade.
In other words, this trade offers nearly 3x to 6x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down with high volume from the consolidation area and IH&S breakout level. 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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