Well-known supplier and manufacturer of building materials, manufactured components and construction services to professional contractors, sub-contractors, remodelers and consumers, Builders FirstSource, Inc. (NASDAQ: BLDR) seem to be poised for a price surge as per its latest charts.
Bullish Indications
#1 Falling Wedge Pattern: As you can see from the daily chart, the stock has been trading within a falling wedge pattern during the past few months.
[hana-code-insert name=’adsense-article’ /]This is marked in the daily chart in blue color.Currently, the stock has started moving up after reaching the bottom of the falling wedge pattern.
A Falling Wedge Pattern is a bullish pattern.
Once the stock moves up and breaks out from it, it has the potential to move further up.
Note: the stock was in a strong uptrend for the past several months.
Then the stock started consolidating and was in a narrow range. This is a classic flag pattern, which is a continuation pattern. The flagpole is marked in orange line in the daily chart. Whenever a stock breaks out of the flag pattern, it typically continues its previous trend which is an uptrend in this case.
Daily Chart – BLDR
#2 RSI Moving Up After Oversold: The daily chart of shows that the RSI is currently moving up after reaching oversold levels. This points to a possible reversal.
#3 Above MA: The daily chart of BLDR shows that the stock is currently trading above its 200-day SMA. This implies that the bulls are still in control.
#5 Unbroken Uptrend in Weekly Chart: As evident from the weekly chart, the stock is in an uptrend as it has been making higher highs and higher lows for the past several months. The stock is also above its 50-week as well as 200-week SMA. These are all bullish signs.
Weekly Chart – BLDR
#6 Good Support Levels Nearby: There are good supports for the stock nearby. There was a long-tailed Doji formed in the previous week. This indicates that it was a good demand area at these levels. This is marked by a green dotted line. The 200-week SMA is also close by and can act as a good support level.
#7 Bollinger Band Support: The stock had recently bounced from the lower band of the Bollinger band as shown in the weekly chart. This indicates the possibility of an upmove in the near future.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, you can purchase the shares of BLDR at the current price of $19.32.
TP: Our first target price (TP#1) is $22 and the second target price (TP#2) is $27 in the next 3-5 months.
SL: To limit risk, place stop-loss at $18.20. Note that stop loss is on a closing basis.
Our target potential upside is 14% to 40% in the next 3-5 months. For a risk of $1.12, our target rewards are $2.68 and $7.68. This is a 1:2 and 1:7 risk-reward trade.
In other words, this trade offers nearly 3x to 7x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down from the falling wedge pattern support with a high volume. 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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