The American multinational independent investment bank and financial services company that operates through two business segments: a broker-dealer and an investment management division, Cowen Inc. (NASDAQ: COWN) seems to be ready for an upmove after a brief pullback according to its latest charts.
#1 Flag Pattern Breakout: As you can see from the daily 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 below 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). However, a retest to the flag pattern’s breakout level usually happens before resuming the trend. Currently, the stock has broken out of the flag pattern, which is a possible bullish sign.
#2 Price Above MAs: The stock’s daily chart shows that the price is currently above the 50-Day SMA as well as 200-day SMA. This shows the strength of the bulls.
#3 Bullish Aroon: The value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30. This indicates bullishness.
#4 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.
#5 %K above %D: The %K line of the stochastic is currently above the %D line in the daily chart, indicating bullishness.
#6 Double Bottom Breakout: As you can see from the weekly chart below, the stock had recently broken out of a double bottom pattern. A double bottom pattern is a bullish reversal pattern and a breakout from it indicates that the stock could move upwards.
#7 MACD above Signal Line: In the weekly chart as well, the MACD line (light blue color) is currently above the MACD signal line (orange color), implying possible bullishness.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for COWN is if it pulls back to the breakout level of the double bottom and flag pattern at around $26. However, those with a higher risk appetite can purchase half the intended quantity of shares of COWN above $34.40.
TP: Our target prices are $40 and $45 in the next 3-6 months.
SL: To limit risk, place a stop loss at $18.70 (for entry near $26.00) and $30.80 (for entry near $34.40). Note that this stop loss is on a closing basis.
Our target potential upside is nearly 16% to 73% in the next 6 months.
Entry near $26.00: For a risk of $7.30, our target rewards are $14.00 and $19.00. This is a 1:2 and 1:3 risk-reward trade.
Entry near $34.40: For a risk of $3.60, our target rewards are $5.60 and $10.60. 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 with high volume from the flag pattern and double bottom breakout levels. 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.
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