The American multinational corporation headquartered in Marysville, Ohio that had started with O.M. Scott began selling lawn seed in 1868, Scotts Miracle-Gro Co (NYSE: SMG) seem to be gearing up for a surge as per its latest charts.
Bullish Indications
#1 Ascending Triangle pattern: SMG’s daily chart shows that the stock had recently formed an Ascending Triangle pattern. An Ascending Triangle pattern is a bullish pattern. This is marked on the daily chart in purple color lines. A breakout from an ascending triangle pattern generally indicates the start of a bullish trend. The stock has currently broken out of the ascending triangle pattern. The breakout level also acts a good support level.
Daily Chart – SMG
#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 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.
#4 MACD above Signal Line: The MACD (light blue color) is currently above the MACD signal line (orange color) in the daily chart.
This typically indicates a bullish setup.
#5 Bullish ADX and DI: The ADX indicator shows bullishness because (+DI) is greater than (-DI), ADX and (+DI) are above (-DI), and ADX has started rising from below both (+DI) and (-DI).
#6 Downtrend Broken: The weekly chart shows that the stock was in a downtrend during the past few months. Currently, the stock has broken out of the downtrend and have started a new uptrend. This is a possible bullish sign.
Weekly Chart – SMG
#7 Bullish MACD above Signal Line: The MACD (light blue color) is currently above the MACD signal line (orange color) in the weekly chart as well. This is also a possible bullish sign.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, you can purchase the shares of SMG if the stock corrects to the buy area of around $87.80 to $85.10. But for those with higher risk appetite, you can purchase half the intended quantity of shares if the stock opens above $90.45.
TP: Our target prices are $98 and $108 based on the breakout from the Ascending Triangle pattern.
SL: To limit risk, place a stop loss near $86 (for entry near $90.45) and $81.60 (for entry near $85.10 to $87.80). Note that the stop loss is on a closing basis.
Our target potential upside is 8% to 27% in the next 4-6 months.
- Entry at $85.10: For a risk of $3.50, the target rewards are $12.90 and $22.90. This is a nearly 1:4 and 1:7 risk-reward trade.
- Entry at $87.80: For a risk of $6.20, the target rewards are $10.20 and $20.20. This is a nearly 1:2 and 1:3 risk-reward trade.
- Entry at 90.45: For a risk of $4.45, the target rewards are $7.55 and $17.55. This is a nearly 1:2 and 1:4 risk-reward trade.
In other words, this trade offers nearly 2x to 7x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down with high volume from the ascending 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.
Happy Trading!
Tara
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