The Florida-based company that produces many kinds of capacitors, such as tantalum, aluminum, multilayer ceramic, film, paper, polymer electrolytic, electromechanical devices, electromagnetic compatibility solutions and supercapacitors, KEMET Corporation (NYSE: KEM) seems to be ready for a price surge according to its latest charts.
Bullish Indications
#1 Descending Triangle Pattern Breakout: The stock’s daily chart shows that it has recently broken out of a descending triangle pattern in an upward direction. This descending triangle pattern is marked in pink color on the daily chart. An upward breakout from a bearish pattern like descending Triangle is typically a good bullish sign.
Daily Chart – KEM
#2 MACD above Signal Line: As you can see from the daily chart, the MACD line (blue color) is currently above the MACD signal line (orange color). This indicates a possible bullish bias.
[hana-code-insert name=’adsense-article’ /]#3 Price above MA: The stock is currently trading above its 50-day SMA.
This shows that the bulls are currently in control.
#4 Bullish Stochastic: The stochastic shows that the %K line is above the %D line.
This indicates an overall bullishness.
#5 Pennant Pattern: As you can see from the weekly chart, the stock was in an uptrend after which it was in a consolidation phase with a narrowing range.
This is a classic pennant pattern, which is marked as purple lines in the weekly chart.
Once a breakout happens from a continuation pattern like the pennant pattern, the stock may move higher.
Weekly Chart – KEM
#6 Bullish RSI: The RSI is currently near 50 after moving up from oversold levels. This is a possible bullish sign.
#7 Above MA: In the weekly chart, the stock is currently above the 200-week SMA, indicating that the bulls are still in control.
#8 Bullish Stochastic: The stochastic shows that the %K line is above the %D line in the weekly chart as well. This indicates an overall bullishness.
Recommended Trade (based on the charts)
Buy Price: If you want to get in on this trade, you can buy the shares of KEM at the current price of $19.29.
TP: Our target prices are $25 and $30 in the next 3-6 months.
SL: To limit risk, place a stop loss at $17.10. Note that the stop loss is on a closing basis.
Our target potential upside is almost 30% to 56% in the next 3-6 months. For a risk of $2.19, our target rewards are $5.71 and $10.71. This is a nearly 1:3 and 1:5 risk-reward trade.
In other words, this trade offers nearly 3x to 5x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down with high volume from the breakout level of the descending 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 the sector.
Happy trading!
Tara
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