The consumer electronics and appliances rental company that engages in the provision of furniture, electronics, appliances, computers, and smartphones through flexible rental purchase agreements, Rent-A-Center Inc. (NASDAQ: RCII) seems to be poised for a price surge as per its latest charts.
Bullish Indications
#1 Downtrend Channel Breakout: As you can see from the daily chart, the stock was trading within a downtrend channel during the past few months. This channel is marked in the daily chart in pink color lines. Currently, the stock has broken out of the upper rail of the downtrend channel. Once a stock breaks out from this downtrend channel, it typically moves higher.
Daily Chart – RCII
#2 Bullish Stoch: The %K line is above the %D line of the stochastic, indicating possible bullishness.
#3 MACD above Signal Line: The MACD (light blue color) is currently above the MACD signal line (orange color) in the daily chart.
This typically indicates a bullish setup.
#4 Symmetrical Triangle Pattern Breakout: The daily chart shows that the stock has currently broken out of a symmetrical triangle pattern.
This pattern is shown as purple color dotted lines.
A symmetrical triangle pattern represents a period of consolidation before the price breaks out.
This is typically formed when there is indecision in the price movements and uncertainty among the buyers and sellers. Once a breakout from the upper line occurs, it usually signifies the start of a new bullish trend.
#5 Price above MA: The stock is currently trading above the short-term moving average of 50-day SMA, which is a possible bullish indication.
#6 Fibonacci Support: Usually, after an up-move, stocks typically retrace to any of the key Fibonacci levels before surging back again. RCII had taken support at the 23.6% Fibonacci support level as seen in the weekly chart before moving higher again. The current levels appear to be a strong support area for the stock.
Weekly Chart – RCII
#7 Above Resistance Area: The weekly chart shows that the stock is currently trading above a strong resistance level, which is marked as a pink color dotted line. This is a possible bullish sign.
#8 Bullish RSI: The RSI is currently above 50 and moving higher in the weekly chart, which is a possible bullish indication.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for RCII is above its 200-day MA. This translates to a price of around $24.50.
TP: Our target prices are $28 and $32 in the next 4-6 months.
SL: To limit risk, place stop-loss at $22.20. Note that the stop-loss is on a closing basis.
Our target potential upside is 15% to 31% in the next 4 to 6 months.
For a risk of $2.30, our target rewards are $3.50 and $7.50. 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 downtrend channel and symmetrical triangle 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