Sumo Logic Inc. (NASDAQ: SUMO) seems to be poised for a price surge as per its latest charts. The company is a cloud-based machine data analytics company focusing on security, operations, and BI usecases. It provides log management and analytics services that use machine-generated big data.
#1 Breakout from Consolidation area: The daily chart shows that the stock was consolidating within a price range for the past few days. This area is marked as a pink color rectangle. The stock has now broken out from this consolidation area with high volume and is currently trading above it. The breakout level of this consolidation area typically acts as a good support level.
#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.
#5 Above Support Area: As you can see from the weekly chart, the stock has currently moved up from a strong support level. This level is marked as a purple dotted line. This looks like a good area for the stock to move higher. The stock is also trading above its 50-week SMA, indicating that the bulls are gaining control.
#7 %K above %D: The %K (blue) line of stochastic has currently crossed above the %D (Orange) line in the weekly chart. This is a possible bullish indication.
#8 Bullish MACD: The MACD line is above the MACD signal line in the weekly chart as well, indicating bullishness.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, you can purchase the shares of SUMO above the price of around $9.95.
TP: Our target prices are $12.00 and $13.50 in the next 3-6 months.
SL: To limit risk, place stop-loss at $8.80. Note that the stop-loss is on a closing basis.
Our target potential upside is 21% to 36% in the next 3 to 6 months.
For a risk of $1.15, our target rewards are $2.05 and $3.55. 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 from the breakout level of the consolidation area 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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