The biotechnology company that primarily focuses on the development of new products for the immune-mediated, inflammatory, orphan, and other diseases, Aldeyra Therapeutics Inc. (NASDAQ: ALDX) shows signs of an upcoming price surge according to its latest charts.
Bullish Indications
#1 Breakout from Consolidation Area: As you can see from the daily chart, the stock was trading within a range for the past several months. This indicates consolidation. The consolidation area is marked as a pink color rectangle in the chart. Currently, the stock has broken out of this consolidation area. A breakout from a consolidation area generally indicates bullishness.
Daily Chart – ALDX
#2 Trading Above MAs: The stock is currently trading above its 50-day as well as 200-day moving averages, indicating a bullish bias for the stock.
#3 MACD above Signal Line: The daily chart shows that the MACD (light blue color) is currently above the MACD signal line (orange color). When this happens, a potential buy signal is generated.
#4 Bullish ADX and DI: The ADX indicator shows bullishness as (+DI) is greater than (-DI) and ADX line, and the ADX line is rising from below both (+DI) and (-DI). This points to a possible upmove in the near-term.
#5 Bullish Stochastic: As you can see from the daily chart, the %K line (blue color) is currently above the %D line (orange color), indicating a possible bullish bias.
#6 IH&S Breakout in Weekly chart: The weekly chart shows that the stock has currently broken out of an Inverted Head and Shoulders (IH&S) pattern with high volume. This IH&S pattern is marked in the chart in orange color. An IH&S pattern is a strong bullish pattern and the breakout from it indicates that the stock may move higher in the short term.
Weekly Chart – ALDX
#7 Bullish Aroon: The value of Aroon Up is above 70 and Aroon Down is below 30 in the weekly chart. This indicates possible bullishness.
Recommended Trade (based on the charts)
Buy Price: If you want to get in on this trade, the ideal buy level for ALDX is if the stock corrects to the breakout level of the IH&S pattern, at around $8.20. However, you can purchase half the intended quantity of shares of ALDX above yesterday’s high, at around $10.50.
TP: Our first target price is $14 and the second target price is $18 in the next 3-6 months based on the IH&S pattern breakout.
SL: To limit risk, place a stop loss below $5.80 (for entry near $8.20) and $8.40 (for entry near $10.50). Note that this stop loss is on a closing basis.
Our target potential upside is almost 33% to 120% in the next 3-6 months.
- Entry near $8.20: For a risk of $2.80, our target rewards are $5.80 and $9.80. This is a 1:2 and 1:4 risk-reward trade.
- Entry near $10.50: For a risk of $2.10, our target rewards are $3.50 and $7.50. This is a 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 with high volume from the Inverted Head and Shoulders 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 regulatory changes in the sector.
Happy Trading!
Tara
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