The outdoor sporting goods retailer in the United States that offers camping products, fishing products, footwear products, hunting and shooting products, optics, electronics, and accessories, as well as various private-label offerings, Sportsman’s Warehouse Holdings Inc. (NASDAQ: SPWH) seems to be ready for a price surge in the near-term.
Bullish Indications
#1 Downtrend Channel Breakout: The daily chart shows that the stock was trading within a downtrend channel for the past several months. This channel is marked on the daily chart in purple color. Currently, the stock has broken out of the upper rail of this channel. Once a stock breaks out from a downtrend channel, it typically moves higher.
Daily Chart – SPWH
#2 Above MAs: The stock is currently trading above the 50-day SMA as well as 200-day SMA, indicating that the bulls are currently in control.
#3 %K above %D: The %K line of the stochastic is currently above the %D line, indicating possible bullishness.
#4 Bullish MACD: The MACD line is above the signal line in the daily chart, indicating a possible bullish bias.
#5 Bullish ADX: The ADX line has currently moved up from below –DI and +DI lines. The +DI line and the ADX line is also currently above –DI line. This indicates possible bullishness.
#6 Flag Pattern Breakout: As you can see from the weekly chart, the stock was in a strong uptrend after which it started consolidating and was in a narrow range. This is a classic flag pattern and is marked in the chart in pink color. A Flag is a continuation pattern. Whenever a stock breaks out of the flag pattern, it typically continues its previous trend (uptrend in this case). Currently, the stock has broken out of the flag pattern, which is a possible bullish sign.
Weekly Chart – SPWH
#7 Bullish Stochastic: The %K line is currently above the %D line in the stochastic of the weekly chart as well. It is also moving higher from oversold levels. All these indicate possible bullishness.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for SPWH is above the resistance level of $18.00.
TP: Our target prices are $23 and $27 in the next 3-6 months.
SL: To limit risk, place a stop loss at $14.70. Note that this stop loss is on a closing basis.
Our target potential upside is nearly 28% to 50% in the next 3-6 months.
For a risk of $3.30, our first target reward is $5.00 and the second target reward is $9.00. This is a 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 from the lower rail of the downtrend channel. The sell-off of the stock could also be triggered in case of any negative news, overall weakness in the market, or any new government rules or regulatory changes in its sector.
Happy Trading!
— Tara