The leading supplier of electrical wire harnesses, seating systems, mechanical assemblies, structures, plastic products and more to the automotive, military, bus, agriculture, warehousing, transportation, mining, industrial, and off-road recreational markets, Commercial Vehicle Group, Inc. (NASDAQ: CVGI) shows signs of an upcoming price surge according to its latest charts.
Bullish Indications
#1 Flag Pattern Breakout: As seen from the daily chart, the stock was in a strong uptrend after which it started consolidating. This is a classic flag pattern, which is a continuation pattern. The flag pattern is marked in purple color in the daily chart. Whenever a stock breaks out of the flag pattern, it typically continues its previous trend which is an uptrend in this case. Currently, the stock has broken out of the flag pattern, which is a bullish sign.
Daily Chart – CVGI
#2 Above MAs: The stock is currently trading above both 50-day and 200-day SMA, indicating the overall bullishness of the stock.
#3 MACD above Signal Line: As you can see from the daily chart, the MACD line (blue color) is currently above the signal line (orange color), indicating a bullish bias.
#4 Bullish Aroon: The value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30 in the daily chart. This indicates possible bullishness.
#5 Bullish ADX and DI: The ADX indicator shows bullishness because (+DI) is greater than (-DI), and ADX has started to move up from below both (+DI) and (-DI).
#6 IH&S Pattern Breakout: As you can see from the weekly chart, the stock has been forming an Inverted Head and Shoulders (IH&S) pattern. This IH&S pattern is marked in the chart in pink color. An IH&S pattern is a strong bullish pattern and a breakout from it indicates that the stock may move higher in the short term. Currently, the stock has broken out of the IH&S pattern, indicating bullishness.
Weekly Chart – CVGI
#7 MACD above Signal Line: In the weekly chart as well, the MACD line (blue color) is currently above the signal line (orange color), indicating a bullish bias.
Recommended Trade (based on the charts)
Buy Price: If you want to get in on this trade, you can purchase half the intended quantity of shares of CVGI above yesterday’s close at around $11.20. Alternatively, you can purchase the shares of CVGI if it corrects to the breakout level of the IH&S pattern at around $9.80.
TP: Our target prices are $14 and $18.
SL: To limit risk, place a stop loss at $7.10 (for entry near $9.80) and $9.40 (for entry near $11.20). Note that this stop loss is on a closing basis.
Our target potential upside is almost 25% to 84% in the next 3-6 months.
- Entry at $9.80: For a risk of $2.70, our target rewards are $4.20 and $8.20. This is an almost 1:2 and 1:3 risk-reward trade.
- Entry at $11.20: For a risk of $1.80, our target rewards are $2.80 and $6.80. This is an almost 1:2 and 1:4 risk-reward trade.
In other words, this trade offers nearly 2x to 4x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down with high volume from the flag 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 regulatory changes in the sector.
Happy Trading!
— Tara
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