Gap Inc. (NYSE: GPS) seems to be poised for a price surge as per its latest charts. The is an American worldwide clothing and accessories retailer.
The stock was also a part of our recent watchlist for breakout stocks.
#1 Double Bottom Pattern Breakout: As you can see from the daily chart below, the stock had recently broken out of a double bottom pattern. This is marked in purple color. A double bottom pattern is a bullish reversal pattern, and a breakout from it indicates that the stock could move upwards.
#2 Price above MAs: The price is currently above the short-term moving average of 50-day SMA as well as the longer-term moving average of 200-day SMA, indicating that the bulls are still in control. This is a positive indication.
#3 MACD Above Signal Line: In the daily chart, the MACD line (light blue color) is currently above the MACD signal line (orange color) which is typically considered bullish.
#4 Bullish ADX: The ADX indicator shows that the +DI line is currently above the –DI line and the ADX line has started to move up from below the –DI and +DI lines. This indicates possible bullishness.
#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 Downtrend Channel Breakout: As you can see from the weekly chart, the stock has been trading within a downtrend channel during the past few months. This is marked in pink color. Currently, the stock has broken out of the downtrend channel. A breakout from the channel usually indicates that the stock would move higher. The stock is also trading above its 50-week SMA, indicating bullishness.
#7 Bullish MACD: The MACD line is above the MACD signal line in the weekly chart as well, indicating bullishness.
#8 Bullish RSI: In the weekly chart, the RSI is currently nearing 50 and moving higher. This is a possible bullish sign.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, you can purchase the shares of GPS above the price of around $13.00.
TP: Our target prices are $15 and $17 in the next 3-6 months.
SL: To limit risk, place stop-loss at $11.90. Note that the stop-loss is on a closing basis.
Our target potential upside is 15% to 31% in the next 3 to 6 months.
For a risk of $1.10, our target rewards are $2.00 and $4.00. This is a nearly 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 from the breakout level of the double bottom 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.