The American manufacturing company of mattresses and bedding products, Tempur Sealy International Inc. (NYSE: TPX) seems to be ready for a surge as per its latest charts.
Bullish Indications
#1 Flag Pattern Breakout: 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 purple 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 bullishness.
Daily Chart – TPX
#2 Trading Above MAs: The stock is currently trading above both its 50-day and 200-day SMA, which implies that the bulls are currently in control.
[hana-code-insert name=’adsense-article’ /]#3 MACD Above Signal Line: In the daily chart, the MACD line (light blue color) is currently above the MACD signal line (orange color).
This is typically considered a bullish sign.
#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 Bullish Stoch: The %K line is above the %D line of the stochastic, indicating possible bullishness.
#6 Ascending Triangle pattern Breakout: TPX’s weekly chart shows that the stock has broken out of an Ascending Triangle pattern. An Ascending Triangle pattern is a bullish pattern and is marked on the chart in pink color. A breakout from a bullish pattern like this usually indicates the possibility of an upmove in the near-term.
Weekly Chart – TPX
#7 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart, indicating possible bullishness.
#8 MACD Above Signal Line: In the weekly chart as well, the MACD line (light blue color) is currently above the MACD signal line (orange color). This is also a possible bullish sign.
#9 Above MAs: In the weekly chart as well, the stock is currently trading above both its 50-week and 200-week SMA, which implies that the bulls are now in control.
#10 Bullish ADX and DI: The ADX indicator shows bullishness because (+DI) is greater than (-DI), ADX and (+DI) are above (-DI), and ADX has moved up from below (-DI) and (+DI).
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, you can buy half the intended quantity of shares of TPX at the current price of $90.95 and the rest if it corrects to the support level of around $83.
TP: Our target prices are $100 and $110 based on the breakout from the Ascending Triangle pattern.
SL: To limit risk, place a stop loss near $77.90. Note that this stop loss is on a closing basis.
Our target potential upside is nearly 20% to 33% in the next 3-5 months.
- Entry at $83: For a risk of $, the target rewards are $ and $. This is a nearly 1:3 and 1:5 risk-reward trade.
- Entry at $90.95: For a risk of $13.05, the target reward (TP#2) is $19.05. This is a nearly 1:2 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 with high volume from the ascending 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.
Happy Trading!
Tara
[hana-code-insert name=’oxford 1′ /]