The American manufacturer of firearms, ammunition, and restraints, Smith & Wesson Brands Inc. (NASDAQ: SWBI) seems to be getting ready for a price bump as per the latest charts.
Bullish Move – Chart Indications
#1 Falling Wedge Breakout: As you can see from the daily chart of SWBI, the stock was forming a falling wedge pattern for the past few months. This is marked as purple color lines. The stock has currently broken out of the falling wedge pattern after taking support at the bottom of the wedge. 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 – SWBI
#2 Price above MAs: The stock is currently trading above its 50-day 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 ADX and DI: The ADX indicator shows bullishness because the (+DI) line and the ADX line is above the (-DI) line, and the ADX line has started to rise from below the (-DI) and (+DI) lines.
#5 Bullish Stochastic: The stochastic indicator shows that the %K line is above the %D line in the daily chart, indicating possible bullishness.
#6 Above Resistance Area: The weekly chart shows that the stock has currently broken out of a resistance area, which is marked as a purple color dotted line. This is a bullish sign.
Weekly Chart – SWBI
#7 Double Bottom Pattern Breakout: The weekly chart shows that the stock had recently broken out a double bottom pattern. This is marked in pink color. A double bottom pattern is a bullish reversal pattern and a breakout from it indicates that the stock could possibly move upwards.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for SWBI is if it corrects to $20.90. However, you can purchase half the intended quantity of shares of SWBI above yesterday’s close, which translates to a price of $22.60.
TP: Our target prices are $26 and $30 in the next 4-6 months.
SL: To limit risk, place a stop loss below $17.50 (for entry near $20.90) and $20.30 (for entry near $22.60). Note that the stop loss is on a closing basis.
Our target potential upside is 15% to 44% in the next 4-6 months.
- Entry near $20.90: For a risk of $3.40, our first target reward is $5.10 and the second target reward is $9.10. This is a nearly 1:2 and 1:3 risk-reward trade.
- Entry near $22.60: For a risk of $2.30, our first target reward is $3.40 and the second target reward is $7.40. 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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