The American multinational food manufacturing company headquartered in Battle Creek, Michigan, Kellogg Company (NYSE: K) seems to be gearing up for a surge as per its latest charts.
#1 IH&S Pattern Breakout: From the daily chart, we can see that the stock has been consolidating in the form of an Inverted Head and Shoulders (IH&S) pattern. This is marked in the chart in purple color. An IH&S pattern is a bullish pattern. A breakout from an IH&S pattern is usually the sign of an upcoming bullish move. Currently, the stock has broken out of the IH&S pattern, which is a possible bullish sign.
#2 Trading Above MAs: The stock is currently trading above both its 50-day and 200-day SMA, which implies that the bulls are currently in control.
#3 Bullish ADX and DI: The ADX indicator shows bullishness because the (+DI) line is greater than the (-DI) line, and the ADX line has started rising from below both (+DI) and (-DI) lines.
#4 Bullish Stoch: The %K line (blue color) is above the %D line (orange color) of the stochastic and is also moving higher from oversold levels. All these indicate possible bullishness.
#5 MACD above Signal Line: In the daily chart, the MACD line is above the MACD signal line which is a bullish signal.
#6 Double Bottom Pattern: The weekly chart shows that the stock is currently forming a double bottom pattern. This is marked in pink color. A double bottom pattern is a strong bullish pattern and a breakout from it would indicate that the stock could surge higher. The stock is also trading above its 50-week as well as 200-week SMA, indicating that the bulls are still in control.
#7 Bullish Aroon: The value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30 in the weekly chart. This indicates possible bullishness.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, you can purchase half the intended quantity of shares of K above yesterday’s close, at around $68.20. The rest of the shares of K can be purchased above the breakout level of the double bottom pattern, at around $72.00.
TP: Our target prices are $80 and $87 in the next 2 to 5 months.
SL: To limit risk, place a stop loss near $67.40 (for entry near $72.00) and $61.20 (for entry near $68.20). Note that this stop loss is on a closing basis.
Our target potential upside is 11% to 28% in the next 2-5 months.
- Entry near $72.00: For a risk of $4.60, the target rewards are $8.00 and $15.00. This is a nearly 1:2 and 1:3 risk-reward trade.
- Entry near $68.20: For a risk of $7.00, the target rewards are $11.80 and $18.80. This is a nearly 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 with high volume from the breakout level of the IH&S pattern. 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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