The American Audio company that develops and manufactures smart speakers, Sonos Inc. (NASDAQ: SONO) shows signs of an upcoming price surge according to its latest charts.
Bullish Indications
#1 Symmetrical Triangle Pattern Breakout: As you can see from the daily chart, the stock had recently formed a symmetrical triangle pattern. This pattern is shown as purple color lines. A symmetrical triangle pattern represents a period of consolidation before the price breaks out or breaks down.
This pattern 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. Currently, the stock has broken out of the symmetrical triangle pattern with very high volume, indicating possible bullishness.
Daily Chart – SONO
#2 Trading Above MA: The stock is currently trading above its 50-day SMA, which implies that the bulls are currently in control.
#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 Stoch: The %K line is above the %D line of the stochastic in the daily chart, indicating possible bullishness.
#5 Bullish ADX: The ADX line has started to move up from below –DI and +DI lines.
The +DI and the ADX lines are also currently above –DI line. This indicates possible bullishness.
#6 Above Support Area: The stock is currently above a long-term support area, which is marked as a green color dotted line. SONO had taken support at this level before moving higher again. This is a possible bullish sign.
Weekly Chart – SONO
#7 Bullish Stoch: The %K line is currently above the %D line of the stochastic in the weekly chart as well. This usually indicates bullishness.
#8 Bullish RSI: The RSI is currently above 50 and moving higher, which is a possible bullish sign.
Recommended Trade (based on the charts)
Buy Price: If you want to get in on this trade, the ideal buy level for SONO is above the price of $16. However, since the breakout from the symmetrical triangle happened with high volume, you can purchase half the intended quantity of shares of SONO if it trades above yesterday’s high, at around $11.80.
TP: Our target prices are $16 and $20 in the next 4-6 months.
SL: To limit risk, place a stop loss at $9.30 (for entry near $11.80) and $13.40 (for entry near $16). Note that this stop loss is on a closing basis.
Our target potential upside is almost 25% to 70% in the next 4-6 months.
- Entry near $11.80: For a risk of $2.50, our target rewards are $4.20 and $8.20. This is an almost 1:2 and 1:3 risk-reward trade.
- Entry near $16: For a risk of $2.60, our target reward is $4.00. This is an almost 1:2 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 with high volume from the symmetrical 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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