The real estate investment trust based in Agoura Hills, California, American Homes 4 Rent (NYSE: AMH) seems 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, the stock was trading within a falling wedge pattern during the past few weeks. This is marked in the daily chart in purple 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. Currently, the stock has broken out of the falling wedge pattern, which is a bullish sign.
Daily Chart – AMH
#2 Good support Nearby: The daily chart shows that the stock is near two gap supports (marked as green dotted lines). These typically acts as a good level for the stock to bounce upwards.
[hana-code-insert name=’adsense-article’ /]#3 Price above MAs: The price is currently above both 50-day as well as 200-day SMA.
This indicates that the bulls are currently in control.
#4 Bullish Aroon: The value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30. This indicates bullishness.
#5 MACD above Signal Line: The daily chart shows that the MACD line (blue color) is above the MACD signal line (orange color).
This is a possible bullish setup.
#6 Price above MAs: In the weekly chart as well, the stock price is above the 50-week and 200-week SMA. This is a possible bullish sign.
Weekly Chart – AMH
#7 Bullish RSI: The RSI is above 50 on the weekly chart, indicating strength.
#8 MACD above Signal Line: In the weekly chart as well, the MACD line (blue color) is above the MACD signal line (orange color). This indicates bullishness.
#9 Bullish Stoch: The %K line of the stochastic is currently above the %D line in the weekly chart, indicating bullishness.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, you can purchase half the intended quantity of shares of AMH at the current price of $21.27 and the rest if the stock closes above the resistance level of $23.
TP: Our target prices are $30 and $35 in the next 4-6 months.
SL: To limit risk, place stop loss at $20.15 (entry near $21.27) and $21.70 (entry near $23). Note that stop loss is on a closing basis.
Our target potential upside is nearly 30% to 65% in the next 4-6 months.
- Entry at $21.27: For a risk of $1.12, our target rewards are $8.73 and $13.73. This is a 1:8 and 1:12 risk-reward trade.
- Entry at $23: For a risk of $1.30, our target rewards are $7.00 and $12.00. This is a 1:5 and 1:9 risk-reward trade.
In other words, this trade offers nearly 5x to 12x 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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