The popular lease-to-own retailer that focuses on leases and retail sales of furniture, electronics, appliances, and computers, Aaron’s, Inc. (NYSE: AAN) seem to be poised for a price surge as per its latest charts.
Bullish Indications
#1 Channel Breakout: As you can see from the daily chart, the stock has been trading within a channel during the past few months. This is marked in the daily chart in purple color. Currently, the stock has broken out of the channel. A break from a channel typically indicates that the stock has the potential to move further up.
Daily Chart – AAN
#2 IH&S Pattern: The stock’s daily chart shows that the stock has been forming an Inverted Head and Shoulders pattern. This is marked in the chart in orange color. This is a bullish pattern and a possible sign of an upcoming bullish move.
[hana-code-insert name=’adsense-article’ /]#3 Above MAs: The daily chart shows that the stock is currently trading above its 50-day as well as 200-day SMA.
This is a bullish sign.
#4 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.
#5 CCI Above 100: The CCI has moved from below zero and is currently above 100, indicating possible bullishness.
#6 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.
Weekly Chart – AAN
#7 Uptrend Unbroken: The weekly chart shows that the stock is still in an uptrend as it has been forming higher highs and higher lows. The stock is also near a strong support level (marked as an orange dotted line). All this indicate bullishness.
#8 Bullish Stoch: The %K line is above the %D line of the stochastic, indicating possible bullishness.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, you can purchase half the intended quantity of shares of AAN at the current price of $49.41. The rest of the stock can be purchased in either of the two scenarios.
- If the stock closes above the breakout level of IH&S pattern at around $51.50.
- If the stock corrects to the long-term support level of $43.50.
TP: Our target prices are $56 and $65 in the next 4-6 months.
SL: To limit risk, place stop-loss at $47.20 (for entry near $51.50 and $49.41) and $41.60 (for entry near $43.55) Note that the stop-loss is on a closing basis.
Our target potential upside 13% to 49% is in the next 4 to 6 months.
- Entry at $43.50: For a risk of $1.90, our target rewards are $12.50 and $21.50. This is a nearly 1:7 and 1:11 risk-reward trade.
- Entry at $49.41: For a risk of $2.21, our target rewards are $6.59 and $15.59. This is a 1:3 and 1:7 risk-reward trade.
- Entry at $51.50: For a risk of $4.30, our target reward (TP#2) is $13.50. This is a 1:3 risk-reward trade.
In other words, this trade offers nearly 3x to 11x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down from the 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.
Happy Trading!
Tara
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