The Washington-based company that provides cloud-based solutions for transaction tax compliance worldwide, Avalara Inc. (NYSE: AVLR) seems to be ready for a price surge in the near-term.
Bullish Indications
#1 Flag Pattern Breakout: As you can see from the daily chart, the stock was in an uptrend after which it started consolidating and was in a narrow 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 the flag pattern, it typically continues its previous trend (uptrend in this case). Currently, the stock has broken out of the flag pattern, which is a bullish sign.
Daily Chart – AVLR
#2 MACD above Signal Line: The daily chart shows that the MACD line (blue color) is above the MACD signal line (orange color). The MACD indicator is also moving up from oversold levels. This is a possible bullish setup.
[hana-code-insert name=’adsense-article’ /]#3 Above MAs: The stock is currently trading above its 50-day as well as 200-day SMA, indicating that the bulls are currently in control.
#4 RSI Strong: Relative strength index (RSI) is currently above 50 after moving up from oversold levels in the daily chart.
This indicates the strength of the current upmove.
#5 Bullish Stochastic: The %K line is currently above the %D line in the stochastic.
This indicates possible bullishness.
#6 Fibonacci Support: Usually, after an up-move, stocks typically retraces to any of the key Fibonacci levels before surging back again. AVLR had taken support at the 61.8% Fibonacci support level as seen in the weekly chart before moving higher. This seems like a strong support area for the stock.
Weekly Chart – AVLR
#7 %K above %D: The %K line of the stochastic is currently above the %D line in the weekly chart as well, indicating bullishness.
#8 RSI Strong: Relative strength index (RSI) is currently above 50 in the weekly chart as well. This indicates the strength of the current upmove. The stock is also above the 50-week SMA, indicating a bullish bias.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, you can purchase the shares of AVLR if it trades above yesterday’s close. This translates to a price of above $76.40.
TP: Our target prices are $82 and $90 in the next 3-6 months.
SL: To limit risk, place a stop loss at $72.60. Note that this stop loss is on a closing basis.
Our target potential upside is nearly 7% to 18% in the next 3-6 months.
For a risk of $3.80, our first target reward is $5.60 and the second target reward is $13.60. 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 flag pattern 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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