The leading producer of minerals, including salt, magnesium chloride, sulfate of potash and other plant nutrition products, Compass Minerals International, Inc. (NYSE: CMP) seems to be getting ready for a surge in its price as per the latest charts.
Bullish Move – Chart Indications
#1 Channel Breakout: As you can see from the daily chart of CMP, the stock was trading within an uptrend channel for the past several months. This channel is marked on the chart in orange color. The stock has finally broken out of this channel. This looks like a bullish indication.
Daily Chart – CMP
#2 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 potential buy signal.
#3 Above MAs: The stock is currently trading above both 50-day as well as 200-day SMA.
This means 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 bullishness.
#5 Bullish ADX: The ADX line is starting to move up from below –DI and +DI lines.
The +DI line is also currently above –DI line. All these indicate possible bullishness.
#6 Ascending triangle pattern Breakout: CMP weekly chart shows that the stock had broken out of an Ascending Triangle pattern. An Ascending Triangle pattern is a bullish pattern. This is marked on the daily chart in pink color. The breakout level of the ascending triangle pattern generally acts as a good support level.
Weekly Chart – CMP
#7 Bullish Stochastic: The stochastic indicator shows that the %K line is above %D line in the weekly chart, indicating possible bullishness.
#9 Bullish MACD: In the weekly chart as well, the MACD line (light blue color) is currently above the MACD signal line (orange color) which is typically considered as a potential buy signal.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for CMP is if it corrects to the breakout level of the channel, at around $61.00.
However, for those with a higher risk appetite, you can purchase half the intended quantity of shares if it trades above yesterday’s close, at around $65.
TP: Our target prices are $70 and $80 in the next 3-5 months.
SL: To limit risk, place a stop loss below $57.80 (for entry near $61) and $61.60 (for entry near $65). Note that the stop loss is on a closing basis.
Our target potential upside is 8% to 31% in the next 3-5 months.
- Entry at $61.00: For a risk of $3.20, our first target reward is $9.00 and the second target reward is $19.00. This is a nearly 1:3 and 1:6 risk-reward trade.
- Entry at $65: For a risk of $3.40, our target rewards are $5.00 and $15.00. This is a nearly 1:2 and 1:4 risk-reward trade.
In other words, this trade offers 2x to 6x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down from the channel support with 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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