The New York-based telecommunications equipment company, Comtech Telecomm. Corp. (NASDAQ: CMTL) seems to be getting ready for a price bump in the short-term as per the latest charts.
Bullish Move – Chart Indications
#1 Falling Wedge Pattern Breakout: As you can see from the daily chart of CMTL, the stock has been forming a falling wedge pattern for the past several weeks. It has typically taken support at the bottom of the wedge before bouncing back. The stock has currently broken out of the falling wedge pattern, indicating possible bullishness.
Daily Chart – CMTL
#2 Double Bottom Pattern: Within the falling wedge pattern, the stock had formed a double bottom pattern. This is marked in the daily chart in pink color. A double bottom pattern is a bullish reversal pattern and a breakout from it indicates that the stock could possibly move upwards. The stock has currently broken out of the double bottom pattern.
[hana-code-insert name=’adsense-article’ /]#3 Price above MA: The stock is currently above both 50-day SMA, indicating that the bulls are currently in control.
#4 %K above %D: The %K line of the stochastic is currently above the %D line in the daily chart, indicating bullishness.
#5 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.
#6 Cup and Handle pattern Breakout: The weekly chart of CMTL shows that the stock has broken out of a cup and handle pattern.
This is marked in the chart in orange color. The cup and handle pattern is a consolidation and breakout pattern and a breakout from it indicates that the stock may move higher in the short term.
Weekly Chart – CMTL
#7 Bullish Stochastic: The %K line is above the %D line of the stochastic in the weekly chart as well, indicating possible bullishness.
#8 MACD Above Signal Line: In the weekly chart, the MACD line (light blue color) is currently above the MACD signal line (orange color). This is also a possible bullish sign.
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 CMTL at the current price of $26.54. The rest of the shares can be purchased if the stock corrects back to the breakout level of falling wedge pattern at around $23 to $24.
TP: Our target prices are $32 and $40 in the next 3 to 6 months.
SL: To limit risk, place a stop loss at $25 (for entry near $26.54) and $20.70 (for entry near $23 to $24). Note that the stop loss is on a closing basis.
Our target potential upside is 21% to 70% in the next 3-6 months.
- Entry near $23.50: For a risk of $2.80, our first target reward is $8.50 and the second target reward is $16.50. This is a nearly 1:3 and 1:6 risk-reward trade.
- Entry near $26.54: For a risk of $1.54, our first target reward is $5.46 and the second target reward is $13.46. This is a nearly 1:4 and 1:9 risk-reward trade.
In other words, this trade offers 3x to 9x 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
[hana-code-insert name=’stansberry-article’ /]