The American adhesive manufacturing company based in Stamford, Connecticut, that develops and manufactures structural materials including carbon fiber, specialty reinforcements, resins, honeycomb, adhesives, engineered honeycomb composite structures, and prepregs, Hexcel Corporation (NYSE: HXL) 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 it has recently broken out of a descending triangle pattern in an upward direction. This descending triangle pattern is marked in pink color on the daily chart. An upward breakout from a bearish pattern like a descending Triangle is typically a good bullish sign.
Daily Chart – HXL
#2 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.
#3 Bullish ADX and DI: The ADX indicator shows bullishness because (+DI) is greater than (-DI), ADX and (+DI) are above (-DI), and ADX is moving up from below (-DI) and (+DI).
#4 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 as a bullish bias.
#5 %K above %D: The %K line of the stochastic is currently above the %D line, indicating possible bullishness.
#5 Double Bottom Pattern: From the weekly chart, we can see that the stock is currently forming a double bottom pattern. This pattern is marked in orange color in the 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 – HXL
#6 %K above %D: The stochastics reveal that the %K line is currently above the %D line in the weekly chart as well. This is a possible bullish sign.
#7 Bullish RSI: The RSI is currently above 50 and moving up, indicating possible bullishness.
#7 Fibonacci Support: Usually, after an up-move, stocks typically retrace to any of the key Fibonacci levels before surging back again. HXL had taken support at the 61.8% Fibonacci support level before moving higher, as seen in the weekly chart. So, this seems like a strong support area for the stock.
Recommended Trade (based on the charts)
Buy Price: If you want to get in on this trade, the ideal buy level for HXL is above the breakout level of the double bottom pattern at around $80.50.
TP: Our target prices are $85 and $90 in the next 3-6 months.
SL: To limit risk, place a stop loss at $77.80. Note that the stop loss is on a closing basis.
Our target potential upside is almost 6% to 12% in the next 3-6 months.
For a risk of $2.70, our target rewards are $4.50 and $9.50. This is a 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 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
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