The American consumer electronics company based in Santa Barbara, California that is widely known for the smart speakers it develops and manufactures, Sonos Inc. (NASDAQ: SONO) seems to be ready for a price surge in the near-term.
Bullish Indications
#1 Channel Breakout: The daily chart of SONO shows that the stock was trading within a downtrend channel for the past few months. This channel is marked on the daily chart in orange color. The stock had taken support at the lower rail of the channel multiple time before moving higher again. Currently, the stock has broken out of the channel. This seems like a possible bullish indication.
Daily Chart – SONO
#2 MACD above Signal Line: The daily chart shows that the MACD line (blue color) is above the MACD signal line (orange color). This is a possible bullish setup.
[hana-code-insert name=’adsense-article’ /]#3 Above MAs: The stock is currently trading above both the short-term moving average of 50-day and the longer term moving average of 200-day SMA.
This indicates that the bulls are currently in control.
#4 Near Support Level: The stock is currently trading above a strong support level.
This is marked as green dotted line.
This seems like a good area for the stock to bounce higher.
#5 Bullish Stochastic: The stochastic in the daily chart shows that the %K line is currently above the %D line. This indicates possible bullishness.
#6 Downtrend Broken: The weekly chart shows that the stock has currently broken out of a short-term downtrend. The downtrend line is marked in purple color. The stock has now started moving upwards and is currently above the 50-week SMA. All these are possible bullish signs.
Weekly Chart – SONO
#7 MACD above Signal Line: The weekly chart also shows that the MACD line (blue color) is above the MACD signal line (orange color). This is a possible bullish setup.
#8 Rising Stochastic: The %K line is currently above the %D line in the stochastic of weekly chart as well. It is also moving up after reaching oversold levels. All these indicates possible bullishness.
#9 Breakout from consolidation area: The weekly chart shows that the stock has currently broken out of a consolidation area. This area is marked as pink rectangle. 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 SONO at the current price of $13.50.
TP: Our target prices are $18 and $25 in the next 3-6 months.
SL: To limit risk, place a stop loss at $10.40. Note that this stop loss is on a closing basis.
Our target potential upside is nearly 33% to 85% in the next 3-6 months.
For a risk of $3.10, our first target reward is $4.50 and the second target reward is $11.50. 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 from the channel 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 new government rules or regulatory changes in its sector.
Happy Trading!
Tara
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