The American public corporation providing diversified systems and services to the transportation and defense markets worldwide, Cubic Corporation (NYSE: CUB) seems to be gearing up for a surge as per its latest charts.
#1 Symmetrical Triangle Pattern Breakout: The stock has currently broken out of a Symmetrical Triangle pattern which is a possible bullish sign. This is marked on the daily chart as purple color lines. A symmetrical triangle is a continuation pattern and is characterized by two converging trendlines connecting a series of sequential peaks and troughs. A breakout from a symmetrical triangle pattern is a possible bullish indication.
#2 Trading above MAs: The stock is currently trading above both the short-term moving average of 50-day SMA and the longer-term moving average of 200-day SMA. This implies a possible bullish bias for the stock.
#4 MACD above Signal Line: The daily chart shows that the MACD line (blue color) has crossed above the signal line (orange color). This is a possible bullish setup.
#5 Bullish ADX: The ADX line has started to move up from below –DI and +DI lines and is currently above the -DI line.
The +DI line is also currently above –DI line. All these indicate possible bullishness.
#6 Ascending triangle pattern: The weekly chart shows that the stock has broken out of an Ascending Triangle pattern. An Ascending Triangle pattern is a bullish pattern. This is marked on the chart in pink color lines. A breakout from this pattern typically indicates bullishness. The base of the triangle generally acts as a good support level after the breakout.
#7 Downtrend Broken: The stock has currently broken out of a short-term downtrend in the weekly chart. This is marked as a purple color dotted line. This is a possible bullish sign.
#8 Above Support Area: The weekly chart shows that the stock is trading above a long-term support level, which is shown as an orange color dotted line. This is a possible bullish indication.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for CUB is if the stock corrects to the price of $54 to $57. Alternatively, those with higher risk appetite can purchase half the intended quantity of shares of CUB above $61.00.
TP: Our target prices are $62 and $70 in the next 3-6 months.
SL: To limit risk, place a stop loss at $50.60 (for entry near $55) and $55 (for entry near $61). Note that this stop loss is on a closing basis.
Our target potential upside is nearly 13% to 27% in the next 3-6 months.
- Entry near $55: For a risk of $4.40, the target rewards are $7.00 and $15.00. This is a nearly 1:2 and 1:3 risk-reward trade.
- Entry near $61: For a risk of $6.00, the target reward (TP#2) is $9.00. This is a nearly 1:2 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 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.
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