The American chain of domestic merchandise retail stores, Bed Bath & Beyond Inc. (NASDAQ: BBBY) seems to be ready for a price surge in the near-term.
Bullish Indications
#1 Pennant Pattern Breakout: As you can see from the daily chart, the stock was in an uptrend after which it started consolidating and was in a narrow range. This is a classic pennant pattern and is marked in the chart in purple color. A pennant is a continuation pattern. Whenever a stock breaks out of this pattern, it typically continues its previous trend (uptrend in this case). Currently, the stock has broken out of the pennant pattern, which is a bullish sign.
Daily Chart – BBBY
#2 MACD above Signal Line: The daily chart shows that the MACD line (blue color) is above the MACD signal line (orange color). The MACD indicator is also moving up from oversold levels. This is a possible bullish setup.
#3 Above MA: The stock is currently trading above its 200-day SMA, indicating that the bulls are still in control.
#4 Bullish Stochastic: The %K line is currently above the %D line in the stochastic. This indicates possible bullishness.
#5 Bullish RSI: The daily chart shows that the RSI is currently above 50 and moving higher, indicating the strength of the current upmove.
#6 Above Support Area: The weekly chart shows that the stock is currently above a support area, which is marked as a green color dotted line. This is a possible bullish indication.
Weekly Chart – BBBY
#7 Bullish RSI: The RSI is above 50 and moving higher in the weekly chart as well, indicating bullishness.
#8 Bullish ADX and DI: The ADX indicator indicates bullishness as the ADX line and the [+DI] line are currently above the [-DI] line, and the ADX line had moved higher from below the [+DI] and [-DI] lines.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, you can purchase the shares of BBBY if it trades above the 50-day SMA, as well as the resistance area. This translates to a price of above $21.30.
TP: Our target prices are $25 and $30 in the next 3-6 months.
SL: To limit risk, place a stop loss at $18.90. Note that this stop loss is on a closing basis.
Our target potential upside is nearly 17% to 41% in the next 3-6 months.
For a risk of $2.40, our first target reward is $3.70 and the second target reward is $8.70. This is a nearly 1:2 and 1:4 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 pennant 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 new government rules or regulatory changes in its sector.
Happy Trading!
— Tara
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