The American developer and publisher of video games for mobile phones and tablet computers, Glu Mobile Inc. (NASDAQ: GLUU) seem to have broken out and look poised for a surge as per the latest charts. This was one of the stocks we had flagged for a possible breakout.
Bullish Indications
#1 Ascending triangle pattern Breakout: The stock’s daily chart shows that the stock has currently broken out of an Ascending Triangle pattern. An Ascending Triangle pattern is a bullish pattern. This is marked on the daily chart in pink color. A breakout from an ascending triangle pattern generally indicates the start of a bullish trend. The breakout level also acts as a good support level.
Daily Chart – GLUU
#2 Trading Above MAs: The stock is currently trading above its 50-day as well as 200-day SMA, which implies that the bulls are currently in control.
#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 Bullish Stoch: The %K line of the stochastic is above the %D line in the daily chart, indicating possible bullishness.
#5 Bullish ADX: The ADX line is starting to move up from below –DI and +DI lines in the daily chart. The ADX line and the +DI line is also currently above –DI line. This indicates possible bullishness.
# 6 Cup and Handle Pattern Breakout: The weekly chart shows that the stock has broken out of a cup and handle pattern. This is marked in the chart in pink color. A cup and handle pattern is a consolidation and breakout pattern and a breakout from this indicates that the stock may move higher. Typically, stocks retrace to the breakout level again before continuing the upmove.
Weekly Chart – GLUU
#7 MACD above Signal Line: In the weekly chart as well, the MACD line is above the MACD signal line which is a bullish signal.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for GLUU is if it corrects to the breakout level of the ascending triangle pattern at around $10.30. Alternatively, you can purchase the shares of GLUU above yesterday’s high, which translates to a price of around $12.75.
TP: Our target prices are $15 and $18 based on the breakout from the Ascending Triangle pattern.
SL: To limit risk, place a stop loss near $7.60 (for entry near $10.30) and $11.40 (for entry near $12.75). Note that this stop loss is on a closing basis.
Our target potential upside is 18% to 75% in the next 4-6 months.
- Entry near $10.30: For a risk of $2.70, the target rewards are $4.70 and $7.70. This is a nearly 1:2 and 1:3 risk-reward trade.
- Entry near $12.75: For a risk of $1.35, the target rewards are $2.25 and $5.25. 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 with high volume from the ascending 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 its sector.
Happy Trading!
— Tara
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