The well-known American mass media company based in Maryland, Discovery, Inc. (NASDAQ: DISCA) seems to be poised for a price surge after a possible correction as per its latest charts.
Bullish Indications
#1 Breakout from Flag Pattern: The stock was in an uptrend after which it was in a consolidation phase. This is a classic flag pattern, which is marked as orange lines in the daily chart. DISCA broke out of the flag on June 11, 2018, and continued its uptrend. The breakout from a continuation pattern like the flag pattern indicates that the stock may move higher.
Daily Chart – DISCA
#2 Descending Triangle Breakout: The stock’s daily chart shows that it had broken out of a descending triangle pattern in an upward direction. This is marked on the daily chart in purple color. The upward breakout from a bearish pattern like descending Triangle is a good bullish sign.
[hana-code-insert name=’adsense-article’ /] #3 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), indicating a bullish bias.#4 Strong Trend as per ADX: The value of ADX is above 40 and moving up, indicating the current uptrend is a strong trend.
The stock is also currently trading above all its major moving averages in the daily chart, indicating that the trend is up.
#5 Downtrend Broken, new uptrend started: The weekly chart of DISCA shows that the stock had broken out of a downtrend and started a new uptrend. This downtrend line is marked in pink color in the daily chart.
After beginning the uptrend, the stock had formed a flag pattern and has currently broken out of it, indicating a possible upmove in the near term. The stock is also trading above its 50-week and 200-week SMA. All these are possible bullish signs.
Weekly Chart – DISCA
#6 MACD above Signal Line: In the weekly chart as well, the MACD line is above the signal line, indicating bullishness.
#7 %K above %D: The stochastics show that the %K line is currently above the %D line in the weekly chart. This is a bullish sign.
However, there are signs of a short-term correction before continuing the upmove. This is because, in the daily chart, there are bearish indications like Overbought RSI moving down, %K crossing below %D line of the Stochastic, and CCI moving down from above 200.
Recommended Trade (based on the charts)
Buy Price: If you want to get in on this trade, the ideal buy level is if the stock corrects back to the long-term support level of $26. This is marked as a green dotted line.
TP: Our target prices are $32 and $40 in the next 3-6 months.
SL: To limit risk, place a stop loss at $23.50. Note that the stop loss is on a closing basis.
Our target potential upside is almost 23% to 54% in the next 3-6 months. For a risk of $2.50, our target rewards are $6.00 and $14.00. This is a 1:2 and 1:7 risk-reward trade.
In other words, this trade offers nearly 2X to 7x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down with high volume from the support level. 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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