The company that develops, manufactures, and commercializes point-of-care (POC) diagnostic tests that are used to detect or diagnose diseases, Chembio Diagnostics Inc. (NASDAQ: CEMI) seems to be ready for a price surge in the near-term.
Bullish Indications
#1 Flag Pattern Breakout: As you can see from the daily chart, the stock was in a strong uptrend after which it started consolidating and was in a narrow range. This is a classic flag pattern and is marked in the chart in purple color. A Flag is a continuation pattern. Whenever a stock breaks out of the flag pattern, it typically continues its previous trend (uptrend in this case). Currently, the stock has broken out of the flag pattern, which is a possible bullish sign.
Daily Chart – CEMI
#2 MACD above Signal Line: The daily chart shows that the MACD line (blue color) is above the MACD signal line (orange color). This is a possible bullish setup.
#3 Above MA: The stock is currently trading above its 200-day SMA, indicating that the bulls are still in control.
#4 Bullish ADX and DI: The ADX indicator shows bullishness because (+DI) is greater than (-DI), ADX and (+DI) are above (-DI), and ADX has started to rise from below both (+DI) and (-DI).
#5 Trendline support: The daily chart shows that the stock had recently bounced higher after taking support at the upward sloping trendline which is marked in pink color.
This is a possible bullish indication.
#6 Rising Stochastic: The %K line is currently above the %D line in the stochastic of the daily chart. This indicates possible bullishness.
#7 Downtrend Broken: The weekly chart shows that the stock has currently broken out of a downtrend and has started a new uptrend. The downtrend line is marked in purple color. The price is also above the 50-week as well as 200-week MA. All these are possible bullish signs.
Weekly Chart – CEMI
#8 Bullish RSI: The RSI is above 50 and moving higher, which is a possible bullish indication.
#9 Above support area: The weekly chart shows that the stock is currently trading above a long-term support area. This is marked as a green color dotted line. This seems like a good area for the stock to bounce higher.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for CEMI is above the price of around $11.00.
TP: Our target prices are $15 and $20 in the next 3-6 months.
SL: To limit risk, place a stop loss at $8.40. Note that this stop loss is on a closing basis.
Our target potential upside is nearly 36% to 82% in the next 3-6 months.
For a risk of $2.60, our first target reward is $4.00 and the second target reward is $9.00. This is a nearly 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 from the flag pattern breakout level. The sell-off of the stock could also be triggered in case of any negative news, overall weakness in the market, or any new government rules or regulatory changes in its sector.
Happy Trading!
Tara
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