The educational technology company based in Salt Lake City, Utah, and the developer and publisher of Canvas, a Web-based learning management system, and Canvas Network, a massive open online course platform, Instructure Inc. (NYSE: INST) seems to be ready for a price surge in the near-term.
#1 Channel Breakout: The daily chart of INST shows that the stock was trading within a downtrend channel for the past few months. This channel is marked on the daily chart in pink color. Currently, the stock has broken out of the channel with high volume. This seems like a possible bullish indication.
#2 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). These point to a possible upmove in the near-term.
This is a possible bullish setup.
#4 Above MAs: The stock is currently trading above both 50-day and 200-day SMA, indicating that the bulls are currently in control.
#5 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.
#6 IH&S Pattern: The weekly chart shows that the stock has been forming an inverted head and shoulders pattern. This pattern is marked in orange color. A breakout from a bullish pattern like IH&S pattern indicates the possibility of an upmove.
#7 Rising Stochastic: The %K line is currently above the %D line in the stochastic. It is also moving up from oversold levels. All this indicates possible bullishness.
#8 RSI Strong: Relative strength index (RSI) is currently above 50 after moving up from oversold levels in the weekly chart. This indicates the strength of the current upmove.
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 INST at the current price of $42 and the rest if the stock breaks out of the IH&S pattern at around $48.
TP: Our target prices are $55 and $60 in the next 3-6 months.
SL: To limit risk, place a stop loss at $38.40 (for entry near $42) and $43.40 (for entry near $48). Note that this stop loss is on a closing basis.
Our target potential upside is nearly 15% to 43% in the next 3-6 months.
- Entry at $42: For a risk of $3.60, our first target reward is $13.00 and the second target reward is $18.00. This is a 1:4 and 1:5 risk-reward trade.
- Entry at $48: For a risk of $4.60, our first target reward is $7.00 and the second target reward is $12.00. This is a 1:2 and 1:3 risk-reward trade.
In other words, this trade offers nearly 2x to 5x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down from the channel breakout level with high volume. 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.
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