The investment holding company that acquires controlling interests in profitable small to middle market businesses in niche industries, as well as works with management to pursue growth opportunities and provide strategic support, Compass Diversified Holdings (NYSE: CODI) seems to be gearing up for a surge as per its latest charts.
Bullish Indications
#1 Ascending triangle pattern Breakout: CODI’s daily chart shows that the stock had broken out of an Ascending Triangle pattern with high volume. An Ascending Triangle pattern is a bullish pattern. This is marked on the daily chart in purple color. The breakout level of the ascending triangle pattern generally acts as a good support level.
Daily Chart – CODI
#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 MACD Above Signal Line: In the daily chart, the MACD line (light blue color) has currently crossed above the MACD signal line (orange color) which is typically considered bullish.
#4 Bullish Stoch: The %K line is above the %D line of the stochastic, indicating possible bullishness.
#5 Bullish ADX and DI: The ADX indicator shows bullishness because (+DI) is greater than (-DI), and ADX line has started moved up from below (-DI) and (+DI).
#6 Bounceback from Support Level: The weekly chart shows that the stock had bounced higher after taking support near a strong support area. This is marked as a green dotted line. This seems like a good bullish indicator.
Weekly Chart – CODI
#7 MACD above Signal Line: In the weekly chart, the MACD line has crossed above the MACD signal line which is a bullish signal.
#8 Price above MAs: The stock is also trading above both 50-week as well as 200-week SMA, indicating that the bulls are still in control.
#9 Bullish Aroon: The value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30 in the weekly chart. This indicates possible bullishness.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, you can purchase half the intended quantity of shares of CODI at the current price of $17.55 and the rest if the stock closes above the resistance level of $18.50.
TP: Our target prices are $23 and $28 in the next 3-6 months.
SL: To limit risk, place a stop loss near $15.80. Note that this stop loss is on a closing basis.
Our target potential upside is 24% to 59% in the next 3-6 months.
- Entry at $17.55: For a risk of $1.75, the target rewards are $5.45 and $10.45. This is a nearly 1:3 and 1:6 risk-reward trade.
- Entry at $18.50: For a risk of $2.70, the target rewards are $4.50 and $9.50. This is a nearly 1:2 and 1:4 risk-reward trade.
In other words, this trade offers nearly 2x to 6x 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 breakout level. 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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