The North American manufacturer and distributor of agricultural fertilizers, based in Deerfield, Illinois, a suburb of Chicago, CF Industries Holdings, Inc. (NYSE: CF) seem to be getting ready for a price bump in the short-term as per the latest charts.
Bullish Move – Chart Indications
#1 Falling Wedge Pattern Breakout: As you can see from the daily chart of CF, the stock has been forming a falling wedge pattern for the past several months. It has typically taken support at the bottom of the wedge before bouncing back. The stock has currently broken out of the falling wedge pattern, indicating possible bullishness.
Daily Chart – CF
#2 Price above MA: The stock is currently above the 50-day SMA, indicating that the bulls have currently gained control.
[hana-code-insert name=’adsense-article’ /]#3 MACD above Signal Line: In the daily chart, the MACD (light blue color) is currently above the MACD signal line (orange color).
This indicates a possible bullish setup.
#4 Bullish Stoch: The %K line is above the %D line of the stochastic, indicating possible bullishness.
#5 Flag Pattern Breakout: As you can see from the weekly chart of CF, the stock was in a strong uptrend after which it started consolidating and was in a narrow range.
This is a classic flag pattern and is marked in the chart below in purple color.
Currently, the stock has broken out of the flag. A Flag is a continuation pattern. Whenever a stock breaks out of the flag pattern, it typically continues its previous trend (uptrend in this case). However, a retest of the flag pattern’s breakout level usually happens before resuming the trend.
Weekly Chart – CF
#7 Bullish Stochastic: The %K line is above the %D line of the stochastic in the weekly chart as well, indicating possible bullishness.
#8 MACD Above Signal Line: In the weekly chart, the MACD line (light blue color) is currently above the MACD signal line (orange color). This is also 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 CF is if it corrects to the breakout level of the falling wedge pattern at around $42.
Note: For those with higher risk appetite, you can purchase half the intended quantity of shares of CF if the stock opens above yesterday’s close. This translates to a price of around $43.60.
TP: Our target prices are $50 and $55 in the next 3 to 6 months.
SL: To limit risk, place a stop loss at $39.60. Note that the stop loss is on a closing basis.
Our target potential upside is 14% to 31% in the next 3-6 months.
- Entry at $42: For a risk of $2.40, our first target reward is $8.00 and the second target reward is $13.00. This is a nearly 1:3 and 1:5 risk-reward trade.
- Entry at $43.60: For a risk of $4.00, our first target reward is $6.40 and the second target reward is $11.40. This is a nearly 1:2 and 1:3 risk-reward trade.
In other words, this trade offers 2x 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 with 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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