The leading provider of medical device and in vitro diagnostic technologies to the healthcare industry, SurModics, Inc. (NASDAQ: SRDX) seems to be ready for a price surge in the near-term.
Bullish Indications
#1 Downtrend Channel: The daily chart of SRDX shows that the stock was trading within a downtrend channel for the past several months. This channel is marked on the daily chart in blue color. Currently, the stock is near the upper rail of this channel. Once the stock breaks out from the channel, it may move higher.
Daily Chart – SRDX
#2 Above MA: The stock is currently trading above the 50-day SMA, indicating that the bulls are currently in control.
[hana-code-insert name=’adsense-article’ /]#3 %K above %D: The %K line of the stochastic is currently above the %D line, indicating possible bullishness.
#4 Bullish RSI: The RSI is currently above 50 and moving up, indicating possible bullishness.
#5 Bullish ADX: The ADX line has currently moved up from below –DI and +DI lines.
The +DI line is also currently above –DI line. This indicates possible bullishness.
#6 Flag Pattern: As you can see from the weekly chart, the stock was in a strong uptrend after which it started consolidating and was in a narrow range.
This is a classic flag pattern and is marked in the chart in pink color. A Flag is a continuation pattern. Whenever a stock breaks out of the flag pattern, it typically continues its previous trend (uptrend in this case). Currently, the stock is near the upper rail of the flag pattern and looks ready for a breakout.
Weekly Chart – SRDX
#7 Bullish MACD: The MACD line is above the signal line in the weekly chart, indicating a possible bullish bias.
#8 Rising Stochastic: The %K line is currently above the %D line in the stochastic of weekly chart as well. This indicates possible bullishness.
#9 Strong RSI: The RSI is currently moving up from oversold levels and is near 50, indicating possible bullishness. The price is also above the 200-week SMA, indicating possible bullish bias.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for SRDX is above the resistance level of $48.20.
TP: Our target prices are $60 and $70 in the next 3-6 months.
SL: To limit risk, place a stop loss at $40.60. Note that this stop loss is on a closing basis.
Our target potential upside is nearly 25% to 45% in the next 3-6 months.
For a risk of $7.60, our first target reward is $11.80 and the second target reward is $21.80. This is a 1:2 and 1:3 risk-reward trade.
In other words, this trade offers nearly 2x to 3x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down from the lower rail of the downtrend channel. The sell-off of the stock could also be triggered in case of any negative news, overall weakness in the market, or any new government rules or regulatory changes in its sector.
Happy Trading!
Tara
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