It is no secret that stocks are prone to sudden moves in either direction. This could be triggered by economic data, geopolitical events, stock-specific news, or market sentiment.
Trading such volatile stocks are usually considered a high-risk-high-reward venture. Many traders opt to stay out of the trade rather than risk a loss. However, careful analysis of the charts could help you to enter at the right levels, thereby limiting risk to an extent.
With this in mind, we recently started a new weekly series on what we’re calling “the trending stock of the week” —stocks that are being featured heavily in the news right now.
This week’s stock pick is Blink Charging Co (NASDAQ: BLNK), the owner, operator, and provider of electric vehicle charging services.
Why BLNK is trending?
BLNK offers both residential and commercial electric vehicle (EV) charging equipment, enabling EV drivers to easily recharge at various location types. The company claims that it has thousands of EV chargers deployed across the U.S. at airports, car dealers, hospitals, hotels, parks, and recreation areas, among others.
After a grant award for 11 Blink fast-charger deployments from Vermont in February, the Ohio Environmental Protection Agency had also awarded BLNK a grant to place 144 Blink fast-charging stations at 32 sites across the state, including clinics and hotels. This had caused an uptick in the price of BLNK.
The shares of Blink Charging also trended higher after the company announced that it has deployed electric vehicle stations in Chile. Blink had reported that the municipality of Pedro Aguirre Cerda had carried out the first installation of Blink HQ 100 chargers by Electro Chile.
The strength of BLNK is also coming in from President Joe Biden’s recently unveiled $2 trillion infrastructure bill, wherein a national EV charging network has been prioritized. The package will support $174 billion being allocated to encourage the adoption of EVs, including money for buyers of EVs, and programs to boost charging infrastructure.
However, there are also clear headwinds for the stock. The company faces stiff competition from other charging station operators like ChargePoint (NYSE: CHPT) and EVgo, which is expected to debut in Q2 under the ticker EVGO on the New York Stock Exchange. EVgo had recently announced a new partnership with Meijer to install EV charging stations at grocery store locations throughout Michigan, Ohio, Indiana, Illinois, Kentucky, and Wisconsin. EV stocks like Tesla have already been building out a network of additional fast chargers for their owners for nearly a decade. There are also disruptive models like ad-based complimentary charging that will eat into the revenue potential of third-party networks.
Yet, Blink’s unique owner/operator model allows the company to realize an economic benefit each time a vehicle is charged at a Blink-owned unit, making it a key differentiator in the industry.
Here’s how to trade BLNK now.
On analysis, the overall trend of BLNK seems to be up. There are also multiple bullish indications on the daily chart of BLNK.
#1 Ascending Triangle Pattern: The daily chart shows that the stock is currently forming an Ascending Triangle pattern. An Ascending Triangle pattern is a bullish formation that usually forms during an uptrend as a continuation pattern. This is marked on the daily chart in purple color. A breakout from an ascending triangle pattern generally indicates the start of a bullish trend. The breakout level also acts as a good support level.
#2 Price Above MA: The stock is currently above the 200-day SMA, indicating that the bulls are still retaining control.
#3 Bullish ADX and DI: The ADX indicator shows bullishness because (+DI) is greater than (-DI), and ADX has started to move up from below (-DI) and (+DI).
#4 Bullish Stoch: The %K line (blue color) is above the %D (orange color) of the stochastic in the daily chart. This is a possible bullish sign.
#5 MACD above Signal Line: The daily chart shows that the MACD line (blue color) is currently above the MACD signal line (orange color). This is a possible bullish setup.
Recommended Bullish Trade (based on the chart)
Buy Levels: If you want to get in on this trade, the ideal buy level for BLNK is above the breakout level of the ascending triangle pattern. This translates to a price of around $42.80. This is marked as a green color dotted line in the daily chart.
Important Note: Make sure that you only enter the trade once the daily close is above the recommended price level.
TP: Our target prices are $48.00 and $55.00 in the next 3 to 6 months.
SL: To limit risk, place a stop loss at $39.70. Note that the stop loss is on a closing basis.
Our target potential upside is 12% to 29% in the next 1-4 months.
For a risk of $3.10, our first target reward is $5.20 and the second target reward is $12.20. This is a nearly 1:2 and 1:4 risk-reward trade.
In other words, this trade offers 2x to 4x more potential upside than downside.
Risks to Consider: The stock may reverse its overall trend if it breaks down from the ascending triangle 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 sector.
Recommended Bearish Trade (based on the chart)
In case the stock breaks down with very high volume from the ascending triangle pattern, it could point to an upcoming short-term correction. In that case, below are the entry levels, stop loss levels, and target prices.
Sell Level: You can take short positions on BLNK if it breaks down from the ascending triangle pattern and closes below the price of $31.60. This sell level is marked as a red color dotted line in the chart.
Important Note: Make sure that you only enter the trade once the daily close is below the recommended price level.
TP: Our target prices are $25.00 and $20.00 in the next 3-6 months.
SL: To limit risk, place a stop loss at $35.40. Note that this stop loss is on a closing basis.
Our target potential downside is 21% to 37% in the next 3-6 months.
For a risk of $3.80, our first target reward is $6.60 and the second target reward is $11.60. This is a nearly 1:2 and 1:3 risk-reward trade
In other words, this trade offers nearly 2x to 3x rewards compared to the risks.
Risks to Consider: The stock may reverse its overall trend if it breaks upwards with high volume. The breakout of the stock could be triggered in case of any positive news, overall strength in the market, or any regulatory changes in its sector.
— Trades of the Day Research Team