The bank holding company organized in Delaware and headquartered in Detroit, Michigan, Ally Financial Inc. (NYSE: ALLY) seem to be gearing up for a surge as per its latest charts.
#1 IH&S Pattern: From the daily chart of ALLY, we can see that the stock has been consolidating in the form of an Inverted Head and Shoulders (IH&S) pattern. This is marked in the chart in orange color. An IH&S pattern is a bullish pattern. A breakout from an IH&S pattern is usually the sign of an upcoming bullish move.
#2 Trading Above MAs: The stock is currently trading above both its 50-day and 200-day SMA, which implies that the bulls are currently in control.
[hana-code-insert name=’adsense-article’ /]#3 Bullish RSI: The RSI is above 50 in the daily chart and moving up.
This indicates possible bullishness.
#4 Bullish CCI: The CCI indicator value is currently moving up. This indicates possible bullishness.
#5 Fibonacci Support: Usually, after an up-move, stocks typically retraces to any of the key Fibonacci levels before surging back again.
ALLY had taken support at the 38.2% Fibonacci support level as seen in the weekly chart.
So, this seems like a strong support area for the stock. Once the stock crosses above the 78.6% Fibonacci level, it has the potential to surge further. Interestingly, this is also near the breakout level of the IH&S pattern.
#6 MACD above Signal Line: In the weekly chart, the MACD line is above the MACD signal line which is a bullish signal. The stock is also trading above its 50-week and 200-week SMA, indicating that the bulls are still in control.
#7 Bullish Aroon: The value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30 in the weekly chart. This indicates possible bullishness.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the recommended buy level for ALLY is above the breakout level of IH&S pattern at around $28. For those with higher risk appetite, you can buy half the intended quantity of stocks of ALLY at the current price of $26.55.
TP: Our target prices are $33 and $40 based on the breakout from the Ascending Triangle pattern.
SL: To limit risk, place a stop loss near $25.90. Note that this stop loss is on a closing basis.
Our target potential upside is 18% to 51% in the next 4-6 months.
- Entry near $26.55: For a risk of $0.65, the target rewards are $6.45 and $13.45. This is a nearly 1:10 and 1:21 risk-reward trade.
- Entry near $28: For a risk of $2.10, the target rewards are $5.00 and $12.00. This is a nearly 1:2 and 1:6 risk-reward trade.
In other words, this trade offers nearly 2x to 21x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down with high volume from the inverted head and shoulders 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 its sector.
Tara[hana-code-insert name=’MMPress’ /]