The American multinational mass media company based in New York City, that primarily operates a group of factual and lifestyle television brands, such as the namesake Discovery Channel, Animal Planet, Science Channel, and TLC, Discovery, Inc. (NASDAQ: DISCA) seems to be gearing up for a surge as per its latest charts.
Bullish Indications
#1 Symmetrical Triangle Pattern Breakout: The daily chart shows that the stock has currently broken out of a Symmetrical Triangle pattern. This is a continuation pattern and is characterized by two converging trend lines connecting a series of sequential peaks and troughs. This pattern is marked on the daily chart as pink color lines. A breakout from a symmetrical triangle pattern usually signifies the start of a bullish move.
Daily Chart – DISCA
#2 Price above MAs: The price is currently above both the short-term moving average of 50-day SMA and the longer-term moving average of 200-day SMA. This usually implies a possible bullish bias for the stock.
#3 MACD above Signal Line: The daily chart shows that the MACD line (blue color) is currently above the MACD signal line (orange color). This is a possible bullish setup.
#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 Bullish ADX and DI: The ADX indicator shows bullishness in the daily chart because the (+DI) line and the ADX line are greater than the (-DI) line, and the ADX line has started to move up from below (-DI) and (+DI).
#7 Above Support Area: In the weekly chart, we can see that the stock is currently trading above a strong support area, which is marked as an orange color dotted line. This is a possible bullish indication.
Weekly Chart – DISCA
#8 MACD above Signal Line: The MACD line (blue color) is currently above the signal line (orange color) in the weekly chart as well, indicating a bullish bias.
#9 %K above %D: The %K line of the stochastic is currently above the %D line in the weekly chart, and is currently moving up from oversold levels. 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 entry level for DISCA is near the breakout level of the symmetrical triangle pattern, between $23.00 to $24.50. However, for those with a higher risk appetite, you can purchase half the intended quantity of shares of DISCA above the price of $26.00.
TP: Our target prices are $32 and $40 in the next 3-6 months.
SL: To limit risk, place a stop loss at $19.00 (for entry near $$24.00) and $21.90 (for entry near $26.00). Note that this stop loss is on a closing basis.
Our target potential upside is nearly 23% to 67% in the next 3-6 months.
- Entry near $24.00: For a risk of $5.00, the target rewards are $8.00 and $16.00. This is a nearly 1:2 and 1:3 risk-reward trade.
- Entry near $26.00: For a risk of $4.10, the target rewards are $6.00 and $14.00. 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 symmetrical 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
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