The software publisher based in San Mateo, California, that offers an industry platform for property and casualty insurance carriers in the U.S. and worldwide, Guidewire Software Inc. (NYSE: GWRE) seems to be gearing up for a surge as per its latest charts.
#1 Price above MAs: The price is currently above both the short-term moving average of 50-day SMA and the longer-term moving average of 200-day SMA. This usually indicates a possible bullish bias for the stock.
#2 Symmetrical Triangle Pattern Breakout: The daily chart shows that the stock had recently formed a Symmetrical Triangle pattern. This is a continuation pattern and is characterized by two converging trend lines connecting a series of sequential peaks and troughs. This pattern is marked on the daily chart as purple lines. The breakout from a symmetrical triangle pattern usually signifies a bullish move. Currently, the stock has broken out of the symmetrical triangle pattern which is a possible bullish sign.
This is a possible bullish setup.
#4 Bullish Aroon: The value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30 in the daily chart.
This indicates possible bullishness.
#5 %K above %D: The %K line of the stochastic is currently above the %D line in the daily chart, indicating possible bullishness.
#6 Flag Pattern: As seen from the daily chart, the stock was in a strong uptrend after which it started consolidating and was in a narrowing range.
This is a classic flag pattern and is marked in the chart in orange color. A flag is a continuation pattern. Whenever a stock breaks out of this pattern, it typically continues its previous trend (uptrend in this case). Currently, the stock has broken out of the flag pattern, indicating possible bullishness.
#7 Cup and Handle pattern Breakout: The weekly chart of GWRE shows that the stock has broken out of a cup and handle pattern. This is marked in the chart in pink color. The cup and handle pattern is a consolidation and breakout pattern and a breakout from it indicates that the stock may move higher in the short term.
#8 MACD above Signal Line: The MACD line (blue color) is currently above the MACD signal line (orange color) in the weekly chart as well. This is also a possible bullish setup.
#9 Bullish ADX: The ADX line is starting to move up from below –DI and +DI lines. The +DI line is also currently above –DI line. This indicates possible bullishness.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy price for GWRE is around $108. However, you may purchase half the intended quantity of shares at the current price of $109.41.
TP: Our target prices are $125 and $140 in the next 4-6 months.
SL: To limit risk, place a stop loss at $99.50. Note that this stop loss is on a closing basis.
Our target potential upside is nearly 14% to 30% in the next 4-6 months.
- Entry at $108: For a risk of $8.50, the target rewards are $17 and $32. This is a nearly 1:2 and 1:4 risk-reward trade.
- Entry at $109.41: For a risk of $9.91, the target rewards are $15.59 and $30.59. This is a nearly 1:2 and 1:3 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 its sector.
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