The American automobile manufacturer of electric vehicles that develops and manufactures light duty electric trucks and is well known for its brand Endurance, an electric full-size pickup truck, Lordstown Motors Corp (NASDAQ: RIDE) seems to be ready for a surge as per its latest charts.
#1 Flag Pattern Breakout: As seen from the daily chart, the stock was in a strong uptrend after which it started consolidating and was in a narrowing range. This is a classic flag pattern and is marked in the chart in purple color. A flag is a continuation pattern. Whenever a stock breaks out of this pattern, it typically continues its previous trend (uptrend in this case). The stock has currently broken out of the flat pattern, indicating possible bullishness.
#2 Trading Above MAs: The stock is currently trading above both its short-term moving average of 50-day SMA and the longer-term moving average of 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 currently greater than (-DI), and ADX is starting to move up from below (-DI) and (+DI).
#4 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.
#5 MACD Above Signal Line: In the daily chart, the MACD line (light blue color) is currently above the MACD signal line (orange color). This is also a possible bullish sign.
#6 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart, and is also moving higher from oversold levels. All these indicate possible bullishness.
#7 Bullish ADX and DI: The ADX indicator shows bullishness in the weekly chart as well because (+DI) and the ADX lines are currently greater than the (-DI) line and the ADX line is above both (-DI) and (+DI) lines.
#8 Bullish RSI: The weekly chart shows that RSI is currently above 50 and moving higher. This indicates the strength of the current upmove.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for RIDE is if it corrects to the breakout level of the flag pattern, at around $18.00. However, those with a higher risk appetite can purchase half the intended quantity of shares of RIDE above yesterday’s close, at around $24.70.
TP: Our target prices are $30 and $35 in the next 3-5 months.
SL: To limit risk, place a stop loss near $12.80 (for entry near $18.00) and $18.80 (for entry near $24.70). Note that this stop loss is on a closing basis.
Our target potential upside is nearly 41% to 94% in the next 3-5 months.
- Entry near $18: For a risk of $5.20, the target rewards are $12.00 and $17.00. This is a nearly 1:2 and 1:3 risk-reward trade.
- Entry near $24.70: For a risk of $5.90, the target reward (TP#2) is $10.30. 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 flag 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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