The popular American furniture chain with more than 300 stores across the United States, Canada, Europe, Asia, and the Middle East, Ethan Allen Interiors Inc. (NYSE: ETH) seem to be getting ready for a price bump as per the latest charts. There are quite a few positive indications on the charts of ETH.
Bullish Move – Chart Indications
#1 Falling Wedge Breakout: As you can see from the daily chart, Ethan Allen Interiors was forming a falling wedge pattern during the past few months. This is marked as purple color lines. The stock has currently broken out of the falling wedge pattern after taking support at the bottom of the wedge. A falling wedge is a bullish pattern and a breakout from it implies that the stock may move higher in the short term.
Daily Chart – ETH
#2 Bullish MACD: In the daily chart, the MACD line (light blue color) is currently above the MACD signal line (orange color) which is typically considered as a potential buy signal.
[hana-code-insert name=’adsense-article’ /]#3 Above MA: The stock has currently crossed above the 50-day SMA, which implies that the bulls are now gaining upper hand.
#4 Bullish Stochastic: The daily chart shows that the %K line is above the %D line in the stochastic.
This indicates possible bullishness.
#5 Bullish RSI: The RSI in the daily chart is currently above 50 and moving up.
This indicates the strength of the current upmove.
#6 Bollinger Support: The weekly chart shows that the stock had recently moved towards the lower band of the Bollinger band. The price has now started moving upwards after taking support from there. This indicates the possibility of an upmove in the near-term.
Weekly Chart – ETH
#7 Oversold RSI moving up: The RSI is moving up after reaching oversold levels. This usually preludes an upcoming price reversal to the upside.
#8 Bullish Stochastic: The stochastic had recently moved up from below 20. The %K line is currently above the %D line. All these indicate possible bullishness.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, you can buy the shares of ETH at the current price of $20.37.
TP: Our target prices are $25 and $32 in the next 4-6 months.
SL: To limit risk, place a stop loss below $19.20. Note that the stop loss is on a closing basis.
Our target potential upside is 23% to 57% in the next 4-6 months. For a risk of $1.17, our first target reward is $4.63 and the second target reward is $11.63. This is a nearly 1:4 and 1:10 risk-reward trade.
In other words, this trade offers 4x to 10x 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 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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