The oil and gas company that engages in the exploration, development, and production of oil and natural gas properties in the Gulf Coast and Gulf of Mexico, Talos Energy Inc. (NYSE: TALO) seems to be ready for a price surge according to its latest charts.
Bullish Indications
#1 Descending Triangle Pattern Breakout: The stock’s daily chart shows that the stock has recently broken out of a descending triangle pattern in an upward direction. This descending triangle pattern is marked in purple color on the daily chart. An upward breakout from a bearish pattern like a descending Triangle is typically a good bullish sign.
Daily Chart – TALO
#2 MACD above Signal Line: As you can see from the daily chart, the MACD line (blue color) is currently above the MACD signal line (orange color). This indicates a possible bullish bias.
[hana-code-insert name=’adsense-article’ /]#3 Price above MAs: The stock is currently trading above its 50-day as well as 200-day SMA.
This shows that the bulls are currently in control.
#4 Bullish Aroon: The value of Aroon Up (orange line) is above 70, while Aroon Down (blue line) is below 30.
This indicates possible bullishness.
#5 Bullish ADX and DI: The ADX line is currently moving up from below –DI and +DI lines.
The +DI line and the ADX line is also above the –DI line. This indicates possible bullishness.
#6 Double Bottom Pattern Breakout: From the weekly chart, we can see that the stock has currently broken out of a double bottom pattern. This pattern is marked in pink color in the weekly chart. A double bottom pattern is a strong bullish pattern. A breakout from the pattern usually foretells the possibility of an upmove in the short term.
Weekly Chart – TALO
#7 %K above %D: The stochastics show that the %K line is currently above the %D line in the weekly chart. This is a possible bullish sign.
#8 Bullish MACD: The MACD line (blue color) is currently above the MACD signal line (orange color) in the weekly chart as well. This indicates a possible bullish bias.
Recommended Trade (based on the charts)
Buy Price: If you want to get in on this trade, you can purchase half the intended quantity of shares of TALO if it opens above yesterday’s close. This translates to a price above $28.
The rest of the shares can be purchased if the stock corrects to the breakout level of the double bottom pattern at around $25.65 or if the stock closes above the resistance level of $30.
TP: Our target prices are $35 and $40 in the next 3-6 months.
SL: To limit risk, place a stop loss at $23.90 (for entry near $25.65, $28) and $26.70 (for entry near $30). Note that the stop loss is on a closing basis.
Our target potential upside is almost 17% to 56% in the next 3-6 months.
- Entry at $25.65: For a risk of $1.75, our target rewards are $9.35 and $14.35. This is a 1:5 and 1:8 risk-reward trade.
- Entry at $28: For a risk of $4.10, our target rewards are $7.00 and $12.00. This is a 1:2 and 1:3 risk-reward trade.
- Entry at $30: For a risk of $3.30, our target rewards are $5.00 and $10.00. This is a 1:2 and 1:3 risk-reward trade.
In other words, this trade offers nearly 2x to 8x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down with high volume from the breakout level of the descending triangle 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
[hana-code-insert name=’MMPress’ /]