The American food company formed by the merger of Kraft Foods and Heinz, Kraft Heinz Co (NASDAQ: KHC) seems to be gearing up for a surge as per its latest charts.
Bullish Indications
#1 Ascending triangle pattern Breakout: The 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 – KHC
#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 and DI: 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 IH&S Pattern Breakout: From the weekly chart, we can see that the stock was consolidating in the form of an Inverted Head and Shoulders (IH&S) pattern. This is marked in the chart in orange color. An IH&S pattern is a bullish pattern and a breakout from it is usually the sign of an upcoming bullish move. Currently, the stock has broken out of an IH&S pattern, which is a possible bullish indication.
Weekly Chart – KHC
#7 Bullish ADX: The ADX line is starting to move up from below –DI and +DI lines in the weekly chart. The +DI line is also currently above –DI line. This indicates possible bullishness.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for KHC is if it corrects to the breakout level of the ascending triangle pattern at around $36.00. Alternatively, you can purchase the shares of KHC if it closes above yesterday’s high, at around $39.30.
TP: Our target prices are $45 and $50 based on the breakout from the Ascending Triangle pattern.
SL: To limit risk, place a stop loss near $30.90 (for entry near $36.00) and $35.50 (for entry near $39.30). Note that this stop loss is on a closing basis.
Our target potential upside is 14% to 39% in the next 4-6 months.
- Entry near $36.00: For a risk of $5.10, the target rewards are $9.00 and $14.00. This is a nearly 1:2 and 1:3 risk-reward trade.
- Entry near $39.30: For a risk of $3.80, the target rewards are $5.70 and $10.70. 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 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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