The fabless semiconductor design company, focusing on low-power, high-definition and Ultra HD video compression, image processing, and computer vision processors, Ambarella Inc. (NASDAQ: AMBA) seems to be gearing up for a surge as per its latest charts.
Bullish Indications
#1 Ascending triangle pattern Breakout: The daily chart of AMBA shows that the stock has broken out of an Ascending Triangle pattern. An Ascending Triangle pattern is a bullish pattern. This is marked on the daily chart in pink color. The breakout level of the ascending triangle pattern generally acts as a good support level.
Daily Chart – AMBA
#2 Trading Above MAs: The stock is currently trading above both its 50-day and 200-day SMA, which implies that the bulls are currently in control.
[hana-code-insert name=’adsense-article’ /]#3 MACD Above Signal Line: In the daily chart, the MACD line (light blue color) is currently above the MACD signal line (orange color) which is typically considered bullish.
#4 Bullish Stoch: The %K line is above the %D line of the stochastic, indicating possible bullishness.
#5 Double Bottom Pattern: The weekly chart shows that the stock is forming a double bottom pattern.
This is marked in purple color in the chart. A double bottom is a bullish pattern and a breakout from it indicates that the stock may move higher in the near-term.
Weekly Chart – AMBA
#6 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart, indicating possible bullishness.
#7 MACD Above Signal Line: In the weekly chart as well, the MACD line (light blue color) is currently above the MACD signal line (orange color). This is also a possible bullish sign.
#8 Bullish Aroon: The value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30 in the weekly chart. This indicates bullishness.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level of AMBA is if the stock closes above $57. Alternatively, you can also purchase half the intended quantity of shares of AMBA if it corrects to the breakout level of the ascending triangle pattern at around $51.
TP: Our target prices are $65 and $75 in the next 4 to 6 months.
SL: To limit risk, place a stop loss around $46 (for entry near $51) and $53 (for entry near $57). Note that this stop loss is on a closing basis.
Our target potential upside is 14% to 47% in the next 3-5 months.
- Entry at $51: For a risk of $5.00, the target rewards are $14.00 and $24.00. This is a nearly 1:3 and 1:5 risk-reward trade.
- Entry at $57: For a risk of $4.00, the target rewards are $8.00 and $18.00. This is a nearly 1:2 and 1:5 risk-reward trade.
In other words, this trade offers nearly 2x to 5x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down with high volume from the ascending triangle breakout level. 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 its sector.
Happy Trading!
Tara
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