The American retailer of aftermarket automotive parts and accessories, the largest in the United States, AutoZone, Inc. (NYSE: AZO) seem to be poised for a price surge as per its latest charts.
Bullish Indications
#1 Symmetrical Triangle Pattern Breakout: As seen from the daily chart, the stock has recently formed and broken out of a Symmetrical Triangle pattern. A symmetrical triangle pattern is a continuation pattern and is characterized by two converging trendlines connecting a series of sequential peaks and troughs. This is marked on the daily chart as pink color lines. This is a possible bullish sign.
Daily Chart – AZO
#2 Strong RSI: The daily chart shows that RSI is above 50 and moving up, indicating strength.
[hana-code-insert name=’adsense-article’ /]#3 Price above MAs: The price is currently above both the short-term moving average of 50-day SMA and the longer-term moving average of 200-day SMA.
This is a bullish sign.
#4 %K above %D: The %K line (blue color) is currently above the %D line (orange color) in the stochastic. This is a bullish sign.
#5 MACD above Signal Line: The daily chart shows that the MACD (light blue color) is currently above the MACD signal line (orange color).
This typically indicates a bullish setup.
#6 Pennant Pattern: As seen from the weekly chart, the stock was in an uptrend after which it started consolidating and was in a narrow range. This is a classic pennant pattern, which is a continuation pattern. The pennant pattern is marked in purple color lines in the weekly chart. Whenever a stock breaks out of the pennant pattern, it typically continues its previous trend which is an uptrend in this case. Currently, the stock has broken out of the pennant pattern which is a possible bullish sign.
Weekly Chart – AZO
#7 MACD above Signal Line: The weekly chart shows that the MACD line (blue color) is above the MACD signal line (orange color). This is a possible bullish setup.
#8 Strong RSI: The weekly chart shows that the RSI has moved up after reaching oversold levels. This is a possible bullish sign.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for AZO is if it breaks above the resistance level of $852. But for those with higher risk appetite, you can buy half the intended quantity of shares of AZO at the current price of $847.30.
TP: Our target prices are $880 and $900 in the next 4-6 months.
SL: To limit risk, place stop-loss at $835. Note that the stop-loss is on a closing basis.
Our target potential upside is 4% to 6% in the next 4 to 6 months.
- Entry at $847.30: For risk of $12.30, our target rewards are $32.70 and $52.70. This is a 1:3 and 1:4 risk-reward trade.
- Entry at $852: For risk of $17.00, our target rewards are $28.00 and 48.00. This is a 1:2 and 1:3 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 symmetrical triangle 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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