Trade This Stock for a 10%-40% Potential Return in the Next 3-6 Months

Sovos Brands, Inc. (NASDAQ: SOVO) seems to be poised for a price surge as per its latest charts. The company operates as a consumer-packaged food company that manufactures and distributes consumer food products in the United States. The company operates in two segments, Dinner and Sauces, and Breakfast and Snacks.

Bullish Indications

#1 Flag Pattern Breakout: The daily chart shows that the stock was in an uptrend after which it started consolidating and was in a narrow range. This is a classic flag pattern and is marked in the chart in purple color. Currently, the stock has broken out of the flag pattern with a high volume. A Flag is a continuation pattern. Whenever a stock breaks out of the flag pattern, it typically continues its previous trend (uptrend in this case).

SOVO – Daily Chart

#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 Stoch: The %K line is above the %D line of the stochastic in the daily chart, indicating possible bullishness.

#6 Above Support Area: As you can see from the weekly chart, the stock has currently moved up from a resistance-turned-support level. This level is marked as a pink color 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 firm control.

SOVO – Weekly Chart

#7 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 shares of SOVO above the price of around $22.70. Alternatively, you can purchase the shares of SOVO if it corrects to the price of around $20.00.

TP: Our target prices are $25 and $28 in the next 3-6 months.

SL: To limit risk, place stop-loss at $21.40 (for entry near $22.70) and $17.50 (for entry near $20.00). Note that the stop-loss is on a closing basis.

Our target potential upside is 10% to 40% in the next 3 to 6 months.

  • Entry near $22.70: For a risk of $1.30, our target rewards are $2.30 and $5.30. This is a nearly 1:2 and 1:4 risk-reward trade.
  • Entry near $20.00: For a risk of $2.50, our target rewards are $5.00 and $8.00. 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 flag 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.

Happy Trading!

Tara

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