The company that manufactures and sells styrenic block copolymers, specialty polymers, and other products, Kraton Corp (NYSE: KRA) seems to be gearing up for a surge as per its latest charts.
#1 Ascending triangle pattern Breakout: The stock’s daily chart shows that it had recently 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. A breakout from an ascending triangle pattern generally indicates the start of a bullish trend.
#2 Trading Above MAs: The stock is currently trading above its 50-day as well as 200-day SMA, which implies that the bulls are currently in control. The stock has also crossed above a strong resistance turned support area, which is marked as pink color dotted line. All these are possible bullish indications.
#3 MACD above Signal Line: The MACD (light blue color) is currently above the MACD signal line (orange color) in the daily chart. This typically indicates a bullish setup.
#4 Bullish ADX and DI: The ADX line has currently started to move up from below –DI and +DI lines in the daily chart. The +DI and ADX lines are also currently above –DI line. This indicates possible bullishness.
#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 possible bullishness.
#6 Downtrend Broken: The weekly chart shows that the stock has currently broken out of the prevailing downtrend and started a new uptrend. The downtrend line is shown in pink color. The stock is also above its 50-week SMA. All these are possible bullish signs.
#7 Bullish RSI: The RSI in the weekly chart is also currently above 50 and moving higher. This is a possible bullish indication.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, you can purchase the shares of KRA if it trades above yesterday’s close. This translates to a price of around $29.10.
Alternatively, you can purchase half the intended quantity of shares of KRA if it corrects to the price of around $24 to $26.
TP: Our target prices are $35 and $40 in the next 3-6 months.
SL: To limit risk, place a stop loss near $25.50 (for entry near $29.10) and $19.00 (for entry near $25). Note that this stop loss is on a closing basis.
Our target potential upside is 20% to 60% in the next 4-6 months.
- Entry near $29.10: For a risk of $3.60, the target rewards are $5.90 and $10.90. This is a nearly 1:2 and 1:3 risk-reward trade.
- Entry near $25.00: For a risk of $6.00, the target rewards are $10.00 and $15.00. 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 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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