One of the largest manufacturers for defense and other government markets, Raytheon Company (NYSE: RTN) 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, RTN has been trading within a falling wedge pattern during the past few weeks. This is marked in blue color in the daily chart. Currently, the stock is near the top 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.
Daily Chart – RTN
#2 RSI –Price Bullish Divergence: There is a bullish divergence between RSI and price. While the price formed a lower low, the RSI formed to a higher low.
[hana-code-insert name=’adsense-article’ /]This is marked as pink dotted lines in the daily chart.The RSI is also moving up from oversold levels. This is a bullish sign.
#3 Bullish Stoch: The %K line is above the %D line in the stochastic. This is a bullish sign.
#4 Flag Pattern: As seen from the weekly chart of RTN, the stock was in a strong uptrend after which it started consolidating and was in a narrow range.
This is a classic flag pattern, which is a continuation pattern.
The flag pattern is marked in orange color 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.
Weekly Chart – RTN
#5 RSI Oversold: The weekly chart shows that the RSI is currently moving up after reaching oversold levels. This points to a possible reversal.
#6 Good Support Levels Nearby: There are good support levels for the stock nearby. The stock has currently taken support at the 61.8% Fibonacci retracement level. In addition, the stock is also near a long-term resistance-turned-support level (marked as a green dotted line). This seems like a good level for the stock to bounce upwards.
#7 Other Bullish Indications: The CCI is above -100 and moving up from below -200, while the stochastic shows that the %K line is above the %D line. These are all bullish signs.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, you can purchase the shares of RTN in any of the following scenarios.
- If the stock closes above the 200-day SMA at around $202.
- If the stock corrects to the bottom of the falling wedge pattern at around $186.
Note: For those with higher risk appetite, you can purchase half the intended quantity of stocks at the current price of $196.10.
TP: Our target prices are $215 and $230 in the next 3-6 months.
SL: To limit risk, place stop-loss at $182.80 (for entry near $196.10 and $186) and $194.80 (for entry near $202). Note that stop loss is on a closing basis.
Our target potential upside is 6% to 24% in the next 3-6 months.
- Entry at $186: For a risk of $3.20, our target rewards are $29 and $44. This is a 1:9 and 1:14 risk-reward trade.
- Entry at $196.10: For a risk of $13.30, our target reward (TP#2) is $33.90. This is a 1: 3 risk-reward trade.
- Entry at $202: For a risk of $7.20, our target rewards are $13 and $28. This is a 1:2 and 1:4 risk-reward trade.
In other words, this trade offers nearly 2x to 14x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down from the falling wedge pattern 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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