The Chinese Internet technology company providing online services centered on content, community, communications, and commerce, NetEase Inc. (NASDAQ: NTES) 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 – NTES
#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 MAs: The stock is currently trading above its 50-day as well as 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) 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 Bullish Stochastic: The %K line is currently above the %D line in the stochastic of the daily chart. This indicates possible bullishness.
#7 Near Resistance Area: The weekly chart shows that the stock is currently near a resistance area, which is marked as a pink color dotted line. Once the stock crosses above this level, it could surge higher.
Weekly Chart – NTES
#8 Bullish RSI: The RSI is above 50 and moving higher, which is a possible bullish indication.
#9 Bullish Stoch: In the weekly chart as well, the %K line (blue color) of the Stoch is above the %D line (orange color). It is also moving higher from oversold levels. All these are possible bullish indications.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for NTES is above the near-term resistance area. This translates to a price of around $101.00.
TP: Our target prices are $110 and $120 in the next 3-6 months.
SL: To limit risk, place a stop loss at $95.00. Note that this stop loss is on a closing basis.
Our target potential upside is nearly 9% to 19% in the next 3-6 months.
For a risk of $6.00, our first target reward is $9.00 and the second target reward is $19.00. 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 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