The company that provides management, administrative, and operating services to the housekeeping, laundry, linen, facility maintenance, and dietary service departments of nursing homes, retirement complexes, rehabilitation centers, and hospitals in the United States, Healthcare Services Group, Inc. (NASDAQ: HCSG) seem to be gearing up for a surge as per its latest charts.
#1 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.
#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.
This is a possible bullish setup.
#4 %K above %D: The %K line of the stochastic is currently above the %D line in the daily chart, indicating possible bullishness.
#5 Bullish ADX and DI: The ADX indicator shows bullishness in the daily chart because (+DI) is greater than (-DI), and ADX has started to move up from below (-DI) and (+DI).
#6 Ascending Triangle Pattern Breakout: In the weekly chart, we can see that the stock has currently broken out of an ascending triangle pattern. This pattern is marked in the chart in purple color. An ascending triangle pattern is a strong bullish pattern and a breakout from it indicates that the stock may move higher in the short term.
#7 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.
#8 Bullish ADX and DI: The ADX indicator shows bullishness in the weekly chart because (+DI) as well as ADX lines are greater than (-DI).
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal entry level for HCSG is above the resistance level of $30.
Note: However, for those with higher risk appetite, you can purchase one-fourth the intended quantity of shares near the current price, at around $29.
TP: Our target prices are $35 and $40 in the next 3-6 months.
SL: To limit risk, place a stop loss at $27. Note that this stop loss is on a closing basis.
Our target potential upside is nearly 17% to 38% in the next 3-6 months.
- Entry at $29: For a risk of $2.00, the target rewards are $6.00 and $11.00. This is a nearly 1:3 and 1:6 risk-reward trade.
- Entry at $30: For a risk of $3.00, the target rewards are $5.00 and $10.00. This is a nearly 1:2 and 1:3 risk-reward trade.
In other words, this trade offers nearly 2x to 6x 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 ascending 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.
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