The Brazilian multinational corporation engaged in metals and mining and one of the largest logistics operators in Brazil, Vale SA (NYSE: VALE) seem to be poised for a price surge as per its latest charts.
Bullish Indications
#1 Symmetrical Triangle Pattern: As seen from the daily chart, the stock has recently formed a Symmetrical Triangle pattern. A symmetrical triangle pattern is a continuation pattern and is characterized by two converging trendlines connecting a series of sequential peaks and troughs. This is marked on the daily chart as purple color lines. This is a possible bullish sign.
Daily Chart – VALE
#2 Strong RSI: The daily chart shows that RSI is currently above 50 and moving up, indicating the strength of the current upmove.
#3 Price above MAs: The price is currently above both the short-term moving average of 50-day SMA and the longer-term moving average of 200-day SMA. This is a bullish sign.
#4 %K above %D: The daily chart shows that the %K line (blue color) is currently above the %D line (orange color) in the stochastic. This is a bullish sign.
#5 Pennant Pattern: As seen from the weekly chart, the stock was in an uptrend after which it started consolidating and was in a narrow range. This is a classic pennant pattern, which is a continuation pattern. The pennant pattern is marked in pink color lines in the weekly chart. Whenever a stock breaks out of the pennant pattern, it typically continues its previous trend which is an uptrend in this case.
Weekly Chart – VALE
#6 Above MAs: The weekly chart shows that the stock is trading above the 50-week as well as the 200-week SMA, indicating that the bulls are still in control.
#7 Bullish ADX and DI: The ADX indicator shows bullishness in the weekly chart, as the ADX line and the +DI lines are above the -DI line, and the ADX line has moved above both the +DI and -DI lines.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for VALE is if it breaks above the symmetrical triangle pattern and closes above the resistance level of $18.50.
TP: Our target prices are $23 and $27 in the next 4-6 months.
SL: To limit risk, place stop-loss at $15.60. Note that the stop-loss is on a closing basis.
Our target potential upside is 24% to 46% in the next 4 to 6 months.
For a risk of $2.90, our target rewards are $4.50 and $8.50. 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 symmetrical triangle pattern with a 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 sector.
Happy Trading!
— Tara
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