The American pharmaceutical company which produces medicines and vaccinations for pets and livestock, Elanco Animal Health Inc. (NYSE: ELAN) shows signs of an upcoming price surge according to its latest charts.
Bullish Indications
#1 Consolidation Area: As you can see from the daily chart, the stock was trading within a range for the past several months. This indicates consolidation. The consolidation area is marked as a pink color rectangle in the chart. Currently, the stock looks poised for a breakout from this consolidation area. A breakout from a consolidation area generally indicates bullishness.
Daily Chart – ELAN
#2 Trading Above MAs: The stock is currently trading above its 50-day as well as 200-day moving averages, indicating a bullish bias for the stock.
#3 MACD above Signal Line: The daily chart shows that the MACD (light blue color) is currently above the MACD signal line (orange color). When this happens, a potential buy signal is generated.
#4 Bullish ADX and DI: The ADX indicator shows bullishness because the (+DI) line and the ADX line are greater than the (-DI) line, and the ADX line has started to rise from below both (+DI) and (-DI) lines. This points to a possible upmove in the near-term.
#5 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.
#6 IH&S Pattern: The weekly chart shows that the stock has been forming an Inverted Head and Shoulders (IH&S) pattern with high volume. This IH&S pattern is marked in the chart in purple color. An IH&S pattern is a strong bullish pattern. Once the stock breaks out of this pattern, it could move higher in the short term.
Weekly Chart – ELAN
#7 Bullish Stochastic: As you can see from the weekly chart, the %K line (blue color) is currently above the %D line (orange color), indicating a possible bullish bias.
Recommended Trade (based on the charts)
Buy Price: If you want to get in on this trade, the ideal buy level for ELAN is above the breakout level of the consolidation area and IH&S pattern, at around $34.80.
TP: Our first target price is $40 and the second target price is $45 in the next 3-6 months based on the IH&S pattern breakout.
SL: To limit risk, place a stop loss below $31.50. Note that this stop loss is on a closing basis.
Our target potential upside is almost 15% to 29% in the next 3-6 months.
For a risk of $3.30, our target rewards are $5.20 and $10.20. 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 with high volume from the Inverted Head and Shoulders 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 the sector.
Happy Trading!
— Tara
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