The customer engagement cloud solutions company best known for its suite of knowledge-powered software applications, eGain Corp (NASDAQ: EGAN) seems to be gearing up for a surge as per its latest charts.
Bullish Indications
#1 Ascending Triangle Pattern Breakout: The daily chart shows that the stock has currently broken out of an Ascending Triangle pattern. An Ascending Triangle pattern is a bullish pattern. This is marked on the daily chart in purple color lines. A breakout from an ascending triangle pattern generally indicates the start of a bullish trend. The breakout level also acts as a good support level.
Daily Chart – EGAN
#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.
#3 Bullish ADX and DI: The ADX indicator shows bullishness because (+DI) is greater than (-DI), and ADX is rising from below both (+DI) and (-DI).
#4 MACD above Signal Line: The MACD line (light blue color) is currently above the MACD signal line (orange color) which is typically considered as a potential buy signal.
#5 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 bullishness.
#6 Bounceback from support area: Usually, after an up-move, stocks typically retrace to any of the key Fibonacci levels before surging back again. The weekly chart shows that the stock had recently taken support at the 23.6% Fibonacci level before moving higher and closing above the 50% Fibonacci level. This seems like a strong support area for the stock.
Weekly Chart – EGAN
#7 Bullish MACD: The MACD line is above the signal line in the weekly chart as well, indicating overall bullishness for the stock.
#8 Bullish RSI: The RSI in the weekly chart is above 50 and moving higher. This is a possible bullish sign.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for EGAN is if the stock corrects to the breakout level of the ascending triangle pattern at around $10.40. However, you can purchase half the intended quantity of shares of EGAN if the stock trades above the price of around $12.00.
TP: Our target prices are $14 and $18 based on the breakout from the Ascending Triangle pattern.
SL: To limit risk, place a stop loss near $8.20. Note that the stop loss is on a closing basis.
Our target potential upside is 35% to 73% in the next 4-6 months.
- Entry at $10.40: For a risk of $2.20, the target rewards are $3.60 and $7.60. This is a nearly 1:2 and 1:4 risk-reward trade.
- Entry at $12.00: For a risk of $3.80, the target reward (TP#2) is $6.00. This is a nearly 1:2 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 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