BorgWarner Inc. (NYSE: BWA) seems to be poised for a price surge as per its latest charts. The company is an American multinational automotive supplier and one of the 25 largest automotive suppliers in the world. BWA provides solutions for combustion, hybrid, and electric vehicles worldwide, operating through four segments: Air Management, E-Propulsion & Drivetrain, Fuel Injection, and Aftermarket.
#1 Falling Wedge Pattern: As you can see from the daily chart, the stock was forming a falling wedge pattern for the past few weeks. These are marked as purple color lines. The stock currently looks poised for a breakout from the falling wedge pattern. A falling wedge is a bullish pattern and a breakout from it implies that the stock may move higher in the short term.
#2 Bullish Stoch: The %K line (blue color) of the stochastic is above the %D line (orange color) in the daily chart, indicating possible bullishness.
#3 Bullish RSI: In the daily chart, the RSI is currently nearing 50 and moving higher. This is a possible bullish sign.
#4 Fibonacci Support: Usually, after an up-move, stocks typically retrace to any of the key Fibonacci levels before surging back again. The Fibonacci retracement levels (marked as orange color lines) are applied to identify levels up to which the stock can bounce back. The stock has currently taken support at the 50% Fibonacci support level, as seen in the weekly chart. This seems like a good area for the stock to move higher.
#5 Bullish RSI: In the weekly chart, the RSI is currently moving higher from oversold levels. This is a possible bullish sign.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for BWA is above the price of around $38.90. However, you can purchase half the intended quantity of shares of BWA above the price of around $37.00.
TP: Our target prices are $43 and $48 in the next 3-6 months.
SL: To limit risk, place stop-loss at $36.40 (for entry near $38.90) and $35 (for entry near $37). Note that the stop-loss is on a closing basis.
Our target potential upside is 11% to 30% in the next 3 to 6 months.
- Entry near $37: For a risk of $2.00, our target rewards are $6.00 and $11.00. This is a nearly 1:3 and 1:6 risk-reward trade.
- Entry near $38.90: For a risk of $2.50, our target rewards are $4.10 and $9.10. This is a nearly 1:2 and 1:4 risk-reward trade.
In other words, this trade offers nearly 2x to 6x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down from the falling wedge 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.
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