The American furniture retailer specializing in a patented modular furniture system called Sactionals, Lovesac Co (NASDAQ: LOVE) seems to be getting ready for a price bump in the short-term as per the latest charts.
Bullish Move – Chart Indications
#1 Downtrend Channel Pattern Breakout: As you can see from the daily chart, the stock was trading within a downtrend channel during the past several months. This is marked in purple color in the daily chart below. The stock had typically taken support at the bottom of the channel before bouncing back. The stock has currently broken out of the downtrend channel, indicating possible bullishness.
Daily Chart – LOVE
#2 Price above MA: The stock is currently above the 50-day SMA, indicating that the bulls are currently in control.
#3 MACD above Signal Line: In the daily chart, the MACD (light blue color) is currently above the MACD signal line (orange color).
This indicates a possible bullish setup.
#4 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 to rise from below both (+DI) and (-DI).
#5 Bullish Stoch: The %K line is above the %D line of the stochastic in the daily chart, indicating possible bullishness.
#6 MACD -Price Bullish Divergence: There is a bullish divergence between MACD and price in the daily chart. While the price formed a lower low, the MACD formed to a higher low. This is marked as orange dotted lines in the chart. A bullish divergence is usually the sign of a possible upmove in the near-term.
#7 Downtrend Broken: The weekly chart shows that the stock has currently broken out of the current downtrend. This is marked as a pink color line. This is a possible bullish indication.
Weekly Chart – LOVE
#8 Bullish RSI: The RSI is currently moving up from oversold levels, indicating bullishness.
#9 Bullish Stoch: The stochastic indicator is currently moving higher from oversold levels. The %K line has also crossed above the %D line. All of these are positive indications.
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 LOVE if it trades above $11. The rest of the shares can be purchased if the stock closes above the resistance level of $15.
TP: Our target prices are $15 and $20 in the next 2 to 6 months.
SL: To limit risk, place a stop loss at $8.30. Note that the stop loss is on a closing basis.
Our target potential upside is 36% to 82% in the next 2-6 months.
For a risk of $2.70, our target rewards are $4.00 and $9.00. This is a nearly 1:2 and 1:3 risk-reward trade.
In other words, this trade offers 2x to 3x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down from the downtrend 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 regulatory changes in the sector.
Happy Trading!
Tara