The consumer packaged food and beverage company that develops, markets, and sells snacks and meal replacements, Simply Good Foods Co (NASDAQ: SMPL) seems poised for a price surge according to its latest charts.
Bullish Indications
#1 Symmetrical Triangle Pattern Breakout: The daily chart had recently formed a symmetrical triangle pattern. This is marked in purple color lines. This pattern is usually formed when there is an indecision in the price movements and uncertainty among the buyers and sellers. It represents a period of consolidation before the price breaks out or breaks down. Currently, the stock has broken out of the symmetrical triangle pattern with high volume. This usually signifies the start of a new bullish trend.
Daily Chart – SMPL
#2 Bullish ADX and DI: The ADX indicator in the daily chart shows bullishness because (+DI) is greater than (-DI), and ADX and (+DI) are above (-DI).
#3 Above MAs: The stock is currently trading above both 50-day and 200-day SMA, indicating that the bulls are currently in control.
#4 Bullish Aroon: The daily chart shows that the value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30. This indicates bullishness.
#5 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.
#6 Cup and Handle Pattern Breakout: The weekly chart of SMPL shows that a cup and handle pattern was formed recently. This is marked in the chart in pink color. A cup and handle pattern is a consolidation and breakout pattern. Once the stock breaks out of the cup and handle pattern with high volume, it usually gives high returns. Currently, the stock has broken out of the cup and handle pattern, indicating possible bullishness.
Weekly Chart – SMPL
#7 Other positive indications: The weekly chart also shows many positive indications. The price is currently above the 50-week and 200-week MAs, the ADX indicator shows bullishness, and the Stochastics indicator is bullish. All these points to a possible upmove in the near-term.
Recommended Trade (based on the charts)
Buy Price: If you want to get in on this trade, the ideal buy price of SMPL is above yesterday’s close, at around $34.60.
TP: Our first target price is $38 and the second target price is $42 in the next 4-6 months.
SL: To limit risk, place a stop loss at $32.40. Note that this stop loss is on a closing basis.
Our target potential upside is almost 10% to 21% in the next 4-6 months.
For a risk of $2.20, our first target reward is $3.40 and the second target reward is $7.40. This is a 1:2 and 1:3 risk-rewards 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 symmetrical 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 the sector.
Happy Trading!
— Tara
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