The largest publicly traded debt buyer by revenue in the United States with operations and investments in 15 countries, Encore Capital Group, Inc. (NASDAQ: ECPG) 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 purple 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.
#3 %K above %D: The %K line of the stochastic is currently above the %D line, indicating bullishness.
#4 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.
#5 New Uptrend: The weekly chart shows that the stock has commenced a new uptrend, which is marked in purple color. This is a possible bullish sign.
#6 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).
#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 ECPG is if it corrects to the price of around $34 to $35.
TP: Our target prices are $42 and $50 in the next 3-6 months.
SL: To limit risk, place a stop loss at $29.90 (for entry near $34) and $31.60 (for entry near $35). Note that this stop loss is on a closing basis.
Our target potential upside is nearly 20% to 47% in the next 3-6 months.
- Entry at $34: For a risk of $4.10, the target rewards are $8.00 and $16.00. This is a nearly 1:2 and 1:4 risk-reward trade.
- Entry at $35: For a risk of $3.40, the target rewards are $7.00 and $15.00. 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.
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