The Texas-based builder of housing developments, with its development projects mostly focused in the southwestern region of the United States, LGI Homes Inc. (NASDAQ: LGIH) seem to be poised for a price surge as per its latest charts.
Bullish Indications
#1 Falling Wedge Pattern Breakout: As you can see from the daily chart, LGIH was trading within a falling wedge pattern during the past several months. This is marked in the daily chart in purple color lines. A Falling Wedge Pattern is a bullish pattern. Once the stock breaks out from it, it has the potential to move further up. Currently, the stock has broken out of the falling wedge pattern, indicating bullishness.
Daily Chart – LGIH
#2 MACD above Signal Line: The daily chart shows that the MACD line (blue color) is currently above the signal line (orange color). This is a possible bullish setup.
[hana-code-insert name=’adsense-article’ /]#3 Above MA: The stock is currently trading above its 50-day SMA.This implies that the bulls are currently gaining an upper hand.
#4 Symmetrical Triangle Pattern Breakout: The daily charts also shows that a symmetrical triangle pattern breakout has occurred.
This is marked in orange color lines.
A symmetrical triangle pattern indicates a period of consolidation before the price breaks out.
This is typically formed when there is an indecision in the price movements and uncertainty among the buyers and sellers. Once a breakout from the upper trend line occurs, it usually signifies the start of a new bullish trend. Currently, the stock has broken out of the symmetrical triangle pattern. This is a bullish sign.
#5 Other Bullish Indicators: The RSI shows bullishness, as it is currently above 50. The %K line is above %D in the stochastic. All these are possible bullish signs.
#6 Fibonacci Support: Usually, after an up-move, stocks retraces to any of the key Fibonacci levels before surging back again. LGIH has currently taken support at 23.6% Fibonacci support level as seen in the weekly chart. This seems like a good area for the stock to bounce upwards.
Weekly Chart – LGIH
#7 Bullish Stochastic: The %K line is currently above the %D line. The stochastic is also moving up from below 20. All this indicates possible bullishness.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, you can purchase the shares of LGIH at the current price of $45.26.
TP: Our target prices are $57 and $70 in the next 3-5 months.
SL: To limit risk, place stop-loss at $42.30. Note that the stop loss is on a closing basis.
Our target potential upside is 26% to 55% in the next 3-5 months. For a risk of $2.96, our target rewards are $11.74 and $24.74. This is an almost 1:4 and 1:8 risk-reward trade.
In other words, this trade offers nearly 4x to 8x 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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