The resource company in the United States that explores for lithium deposits, Lithium Americas Corp (NYSE: LAC) seems to be getting ready for a price bump as per the latest charts.
Bullish Move – Chart Indications
#1 Falling Wedge Pattern Breakout: As you can see from the daily chart, the stock was forming a falling wedge pattern for the past few weeks. This is marked as pink color lines. The stock has currently broken out the upper rail of the falling wedge pattern. A falling wedge is a bullish pattern and a breakout from it implies that the stock may move higher in the short term.
Daily Chart – LAC
#2 Price above MAs: The stock is currently trading above its 50-day SMA as well as 200-day SMA, indicating that the bulls are presently 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 potential buy signal.
#4 Bullish Stochastic: The %K (blue) line of stochastic is currently above the %D (Orange) line in the daily chart. This is a possible bullish indication.
#5 Bullish ADX and DI: The ADX indicator shows bullishness because (+DI) is greater than (-DI), ADX and (+DI) are above (-DI), and ADX is starting to move up from below (-DI) and (+DI).
#6 Fibonacci Support: Usually, after an up-move, stocks typically retrace to any of the key Fibonacci levels before surging back again. LAC had taken support at the 50% Fibonacci support level and is currently above the 61.80% Fibonacci support level, as seen in the weekly chart. So, this seems like a good area for the stock to surge higher.
Weekly Chart – LAC
#7 %K above %D: The %K (blue) line of stochastic is currently above the %D (Orange) line in the weekly chart as well. 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 buy price for LAC is if the stock closes above $12.50.
TP: Our target prices are $16 and $20 in the next 2-6 months.
SL: To limit risk, place a stop loss below $10.20. Note that the stop loss is on a closing basis.
Our target potential upside is 13% to 38% in the next 2-6 months.
For a risk of $2.30, our first target reward is $3.50 and the second target reward is $7.50. This is a nearly 1:2 and 1:3 risk-reward trade.
In other words, this trade offers 2x to 3x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down from the falling wedge pattern with high volume. 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 the energy sector.
Happy Trading!
— Tara
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