The popular American food products company founded in Austin, Minnesota, Hormel Foods Corp (NYSE: HRL) seem to be poised for a price surge according to its latest charts.
#1 Symmetrical Triangle Pattern Breakout: As seen from the daily chart, HRL had recently formed a symmetrical triangle pattern. This is marked in pink color lines. This pattern is usually formed when there is an indecision in the price movements and uncertainty among the buyers and sellers. It represents a period of consolidation before the price breaks out or breaks down. Currently, the stock has broken out of the symmetrical triangle pattern. This usually signifies the start of a new bullish trend.
#2 Bullish ADX and DI: The ADX indicator in the daily chart shows bullishness because (+DI) is greater than (-DI), and ADX is starting to rise up.
#4 Bullish Stoch: The %K line of the stochastic is currently above the %D line, indicating possible bullishness.
#5 Cup and Handle Pattern: The weekly chart of HRL shows that a cup and handle pattern is being formed.
This is marked in the chart in purple color.
A cup and handle pattern is a consolidation and breakout pattern.
Once the stock breaks out of the cup and handle pattern with high volume, it usually gives high returns.
#6 Price above MA: The weekly chart shows that the price is currently above the 200-week MA, which is a possible bullish sign.
#7 MACD Above Signal Line: In the weekly chart, the MACD line (light blue color) is currently above the MACD signal line (orange color). This is a possible bullish sign.
#8 %K above %D: The stochastics reveal that the %K line is currently above the %D line in the weekly chart as well. This is a possible bullish sign.
Recommended Trade (based on the charts)
Buy Price: If you want to get in on this trade, the ideal buy level for HRL is above the breakout level of the cup and handle pattern at around $45.
TP: Our first target price is $55 and the second target price is $60 in the next 4-6 months.
SL: To limit risk, place a stop loss at $40.10. Note that this stop loss is on a closing basis.
Our target potential upside is almost 22% to 33% in the next 4-6 months.
For a risk of $4.90, our first target reward is $10.00 and the second target reward is $15.00. This is a 1:2 and 1:3 risk-rewards trade.
In other words, this trade offers nearly 2x to 3x 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 the sector.