The company that designs, develops, and manufactures semiconductor and fiber lasers for industrial, microfabrication, and aerospace and defense applications, Nlight Inc. (NASDAQ: LASR) seems to be gearing up for a surge as per its latest charts.
#1 Consolidation Area Breakout: The daily chart shows that the stock was consolidating within a price range for the past several months. This area is marked as a purple color rectangle. The stock has now broken out from this consolidation area and is currently trading above it. The breakout level of this consolidation area typically acts as a good support level.
#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 MACD Above Signal Line: In the daily chart, the MACD line (light blue color) is currently above the MACD signal line (orange color) which is typically considered as a bullish bias.
#4 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).
#5 Bullish Stochastic: The %K (blue) line of stochastic is currently above the %D (Orange) line in the daily chart. It is also moving higher from oversold levels. This is a possible bullish indication.
#6 Resistance Turned Support Area: The weekly chart shows that the stock has crossed above a strong resistance area after multiple attempts. This area is marked as an orange color dotted line. After the breakout, it has now turned into a strong support area. This is a possible bullish indication.
#7 MACD above Signal Line: In the weekly chart as well, the MACD line is above the MACD signal line which is a bullish signal. The stock is also trading above its 50-week SMA, indicating that the bulls are still in control.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the recommended buy level for LASR is if the stock retests to the breakout level of the consolidation area, at around $26.30. However, for those with a higher risk appetite, you can purchase half the intended quantity of shares if it trades above Friday’s high, at around $32.50.
TP: Our target prices are $35 and $42 based on the breakout from the consolidation area.
SL: To limit risk, place a stop loss near $20.70 (for entry near $26.30) and $27.50 (for entry near $32.50). Note that this stop loss is on a closing basis.
Our target potential upside is 29% to 60% in the next 4-6 months.
- Entry at $26.30: For a risk of $5.60, the target rewards are $8.70 and $15.70. This is a nearly 1:2 and 1:3 risk-reward trade.
- Entry at $32.50: For a risk of $5.00, the target reward (TP#2) is $9.50. 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 breakout level of the consolidation area. 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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