The American furniture, mattress, electronics and appliance store chain headquartered in The Woodlands, Texas, Conn’s Inc. (NASDAQ: CONN) seem poised for a price surge according to its latest charts.
#1 Symmetrical Triangle Pattern Breakout: As seen in the daily chart of CONN, a symmetrical triangle pattern has been formed during the past few weeks.
This pattern represents a period of consolidation before the price breaks out.
A symmetrical triangle pattern is typically formed when there is an indecision in the price movements and uncertainty among the buyers and sellers.
Once a breakout from the upper trend line of the pattern occurs, it usually signifies the start of a new bullish trend.
Currently, the stock has broken out of the symmetrical triangle pattern, indicating bullishness.
#2 Above MAs: The stock price is currently above both 50-day and 200-day SMA. This is a bullish sign.
#3 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).
#4 MACD above Signal Line: In the daily chart, the MACD (light blue color) is currently above the MACD signal line (orange color). This indicates a possible bullish setup.
#5 Bullish Stochastic: The %K line is above the %D line of the stochastic in the daily chart, indicating bullishness.
#6 Support Area: There is a good support area nearby, which is marked as a purple dotted line in the daily chart. This seems like a possible bullish indication.
#7 Double Bottom Pattern: The weekly chart shows that the stock is currently forming a double bottom pattern. This is marked in pink color. Once the stock breaks out from the double bottom pattern, it may move higher.
#8 MACD above Signal Line: In the weekly chart as well, the MACD (light blue color) is currently above the MACD signal line (orange color), indicating bullishness.
#9 Strong RSI: The RSI is above 50 and moving up, indicating strength of the current upmove. There is also a bullish divergence between RSI and price in the weekly chart. While the price formed a lower low, the RSI formed to a higher low. This is marked as blue dotted lines in the chart. A bullish divergence is usually the sign of a possible upmove in the near-term.
Recommended Trade (based on the charts)
Buy Price: If you want to get in on this trade, the ideal buy level for CONN is around $26.
TP: Our target prices are $33 and $40 in the next 4-6 months.
SL: To limit risk, place a stop loss at $22. Note that this stop loss is on a closing basis.
Our target potential upside is 27% to 54% in the next 4-6 months.
For a risk of $4.00, our target rewards are $7.00 and $14.0. 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 the sector.