The North Carolina-based producer of mattress fabrics and marketer of upholstery fabrics for furniture, Culp, Inc. (NYSE: CULP) seems 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. This is marked in the daily chart in blue color. 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 – CULP
#2 Bullish Stoch: The %K line is above the %D line of the stochastic and it has currently moved up from oversold levels, indicating possible bullishness.
[hana-code-insert name=’adsense-article’ /]#3 MACD above Signal Line: In the daily chart, the MACD (light blue color) is currently above the MACD signal line (orange color).This indicates a possible bullish setup.
#4 Strong RSI: The RSI is above 50 and moving up. This is a bullish sign.
#5 RSI-Price Bullish Divergence in Weekly Chart: There is a bullish divergence between RSI and price in the weekly chart.
While the price formed a lower low, the RSI formed to a higher low. This is marked as pink dotted lines. The RSI is also moving up from oversold levels, which is a bullish sign.
Weekly Chart – CULP
#6 Near Long-term Support Level: The stock is currently near a long-term support level. This is marked as a blue dotted line.
#7 Doji: Last week’s candle was a Doji, which is a reversal candlestick pattern. This indicates that the stock may reverse from its prevailing downtrend.
#8 %K above %D: The %K line is above the %D line of the stochastic in the weekly chart as well, indicating possible bullishness.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, you can purchase shares of CULP if the stock breaks out of the falling wedge pattern. This translates to a price of $25.50. For those with a higher risk appetite, you can purchase half the intended quantity of shares at the current price of $24.23.
TP: Our target prices are $32 and $42 in the next 4-6 months.
SL: To limit risk, place stop loss at $21.50. Note that stop loss is on a closing basis.
Our target potential upside is 25% to 73% in the next 4-6 months.
- Entry at $24.23: For a risk of $2.73, our target rewards are $7.77 and $17.77. This is a 1:3 and 1:7 risk-reward trade.
- Entry at $25.50: For a risk of $4.00, our target rewards are $6.50 and $16.50. This is a 1:2 and 1:4 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 from the falling wedge 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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