The late-stage biopharmaceutical company focused on developing novel therapies for immune mediated diseases, Principia Biopharma Inc. (NASDAQ: PRNB) seem to be gearing up for a surge as per its latest charts.
Bullish Indications
#1 Symmetrical Triangle Pattern Breakout: The daily chart shows that the stock has currently broken out of 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 pink color dotted lines. A breakout from a symmetrical triangle pattern usually signifies the start of a bullish move.
Daily Chart – PRNB
#2 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 implies a possible bullish bias for the stock.
[hana-code-insert name=’adsense-article’ /]#3 MACD above Signal Line: The daily chart shows that the MACD line (blue color) is currently above the MACD signal line (orange color).
This is a possible bullish setup.
#4 Channel Breakout: The daily chart shows that the stock had formed a trend channel in the last few months.
This is marked as purple color lines.
Currently, the stock has broken out from the upper rail of this trend channel.
Once the stock breaks out of a channel, it usually moves higher.
#5 %K above %D: The %K line of the stochastic is currently above the %D line in the daily chart, indicating possible bullishness.
#6 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.
#7 Double Bottom Pattern Breakout: In the weekly chart, we can see that the stock has currently broken out of a double bottom pattern. This pattern is marked in the chart in pink color. A double bottom pattern is a strong bullish pattern and a breakout from it indicates that the stock may move higher in the short term.
Weekly Chart – PRNB
#8 MACD above Signal Line: The MACD line (blue color) is currently above the signal line (orange color) in the weekly chart as well, indicating a bullish bias.
#9 %K above %D: The %K line of the stochastic is currently above the %D line in the weekly chart too, indicating possible bullishness.
#10 Bullish ADX and DI: The ADX indicator shows bullishness in the weekly chart because (+DI) is greater than (-DI), and ADX is starting to move up from below (-DI) and (+DI).
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal entry level for PRNB is if the stock corrects to the breakout level of the channel at around $42.50.
Note: However, for those with higher risk appetite, you can purchase one-fourth the intended quantity of shares of PRNB at the current price of $48.90.
TP: Our target prices are $50 and $60 in the next 3-6 months.
SL: To limit risk, place a stop loss at $37.40. Note that this stop loss is on a closing basis.
Our target potential upside is nearly 18% to 42% in the next 3-6 months.
For a risk of $5.10, the target rewards are $7.50 and $17.50. This is a nearly 1:2 and 1:3 risk-reward trade.
In other words, this trade offers nearly 2x to 3x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down with high volume from the channel breakout level and symmetrical triangle 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 regulatory changes in its sector.
Happy Trading!
Tara
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