The company that designs, manufactures, and markets thermoplastic corrugated pipes and related water management products, and drainage solutions for use in the underground construction and infrastructure marketplace internationally, Advanced Drainage Systems Inc. (NYSE: WMS) shows signs of an upcoming price surge according to its latest charts.
Bullish Indications
#1 Consolidation Area: The daily chart shows that the stock has been trading within a consolidation area for the past several days. This is marked in the daily chart as a pink color rectangle. Once a stock breaks out from a consolidation area, it usually moves higher.
Daily Chart – WMS
#2 Above MAs: The stock is currently trading above its 50-day as well as 200-day SMA and had moved higher with high volume. This indicates an overall bullishness of the stock.
#3 Bullish ADX and DI: The ADX indicator shows bullishness because the +DI line is above the -DI line and the ADX line is currently moving higher from below the +DI and -DI lines.
#4 Bullish RSI: The RSI is currently above 50 and moving higher. This is a possible bullish sign.
#5 MACD above Signal Line: As you can see from the daily chart, the MACD line (blue color) is currently above the signal line (orange color). This indicates a possible bullish bias.
#6 Flag Pattern: As seen from the weekly chart, the stock was in a strong uptrend after which it started consolidating and was in a narrowing 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 this pattern, it typically continues its previous trend (uptrend in this case). Currently, the stock looks poised for a breakout from the flag pattern. It is also trading above its 50-week as well as 200-week SMA. All these are possible signs of an upcoming bullish move.
Weekly Chart – WMS
#7 Bullish Stoch: The %K line (blue color) of the stochastic is currently above the %D line (orange color), indicating possible bullishness.
Recommended Trade (based on the charts)
Buy Price: If you want to get in on this trade, the ideal buy level for WMS is above the price of around $118.00.
TP: Our target prices are $125 and $135 in the next 1-5 months.
SL: To limit risk, place a stop loss at $113.80. Note that this stop loss is on a closing basis.
Our target potential upside is almost 6% to 14% in the next 1-5 months.
For a risk of $4.20, our target rewards are $7.00 and $17.00. This is almost 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 flag 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