The company that designs, develops, manufactures, markets and supports software driven, three-dimensional (3-D) measurement, imaging and realization systems, FARO Technologies, Inc. (NASDAQ: FARO) seems to be gearing up for a surge after a slight correction as per its latest charts.
#1 Symmetrical Triangle Pattern Breakout: The daily chart shows that the stock had recently broken out of a Symmetrical Triangle pattern. This is a continuation pattern and is characterized by two converging trend lines connecting a series of sequential peaks and troughs. This pattern is marked on the daily chart as pink color lines. The breakout from a symmetrical triangle pattern usually signifies the start of a bullish move. Currently, the stock has broken out of the symmetrical triangle pattern, which is a possible bullish sign.
#2 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 usually implies a possible bullish bias for the stock.
#4 Bullish Aroon: The Aroon indicator denotes bullishness, as the value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30 in the daily chart.
#5 MACD above Signal Line: The MACD line (light blue color) is currently above the MACD signal line (orange color) which is typically considered as a potential buy signal.
#6 Fibonacci Level Support: Usually, after an up-move, stocks retraces to any of the key Fibonacci levels before surging back again.
As seen in the weekly chart, FARO had taken support at the 38.2% Fibonacci support level of the upmove before bouncing back again to close above 61.8% Fibonacci level. This seems like a good support area.
#7 MACD above Signal Line: In the weekly chart as well, the MACD line (light blue color) is currently above the MACD signal line (orange color) which is typically considered as a potential buy signal.
#8 %K above %D: The %K line of the stochastic is currently above the %D line in the weekly chart too, indicating possible bullishness.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for FARO is at $52.10.
Note: For those with higher risk appetite, you can purchase half the intended quantity of shares of FARO at the current price of $55.13.
TP: Our target prices are $60 and $68 in the next 3-6 months.
SL: To limit risk, place a stop loss at $48.40. Note that this stop loss is on a closing basis.
Our target potential upside is nearly 15% to 31% in the next 3-6 months. For a risk of $3.70, the target rewards are $7.90 and $15.90. This is a nearly 1:2 and 1:4 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 with high volume from the symmetrical triangle 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.