The company that operates with interest in providing kidney dialysis services and offers outpatient and inpatient dialysis treatments for patients suffering from chronic kidney failure, American Renal Associates Holdings Inc. (NYSE: ARA) seems to be ready for a price surge according to its latest charts.
Bullish Indications
#1 Descending Triangle Pattern Breakout: The stock’s daily chart shows that it has recently broken out of a descending triangle pattern in an upward direction. This descending triangle pattern is marked in pink color on the daily chart. An upward breakout from a bearish pattern like descending Triangle is typically a good bullish sign.
Daily Chart – ARA
#2 MACD above Signal Line: As you can see from the daily chart, the MACD line (blue color) is currently above the MACD signal line (orange color). This indicates a possible bullish bias.
[hana-code-insert name=’adsense-article’ /]#3 Price above MAs: The stock is currently trading above its 50-day as well as 200-day SMA.
This shows that the bulls are currently in control.
#4 Bullish ADX: The ADX line is starting to move up from below –DI and +DI lines. The +DI line is also currently above –DI line.
This indicates possible bullishness.
#5 Bullish Stochastic: The stochastic shows that the %K line is above the %D line.
This indicates an overall bullishness.
#6 Channel Breakout: The daily chart shows that the stock had broken out of a consolidation channel. This channel is marked as orange dotted lines. This seems like a possible bullish sign.
#7 Multiple Bottom Pattern Breakout: From the weekly chart, we can see that the stock had formed multiple bottom pattern. This pattern is marked in pink color in the chart. This pattern is a strong bullish pattern and a breakout from it usually foretells the possibility of an upmove in the short term.
Weekly Chart – ARA
#8 %K above %D: The stochastics reveal that the %K line is currently above the %D line in the weekly chart as well. This is a possible bullish sign.
#9 Bullish RSI: In the weekly chart, the RSI is above 50 and moving up. This is a possible bullish sign.
#10 Bullish MACD: The MACD line (blue color) is currently above the MACD signal line (orange color) in the weekly chart as well. This indicates a possible bullish bias.
#11 Downtrend Broken: The weekly chart shows that the stock has broken out of a downtrend. This downtrend line is marked in purple color. This is a possible bullish sign.
Recommended Trade (based on the charts)
Buy Price: If you want to get in on this trade, the ideal buy level for ARA is if it corrects to the range of $8.00 to $9.25. However, you can purchase half the intended quantity of shares of ARA at the current price of $10.26.
TP: Our target prices are $14 and $20 in the next 3-6 months.
SL: To limit risk, place a stop loss at $6.90 (for entry near $8.00 to $9.25) and $8.60 (for entry near $10.26). Note that the stop loss is on a closing basis.
Our target potential upside is almost 36% to 150% in the next 3-6 months.
- Entry at $8.00: For a risk of $1.10, our target rewards are $6.00 and $12.00. This is a 1:5 and 1:11 risk-reward trade.
- Entry at $9.25: For a risk of $2.35, our target rewards are $4.75 and $10.75. This is a 1:2 and 1:5 risk-reward trade.
- Entry at $10.26: For a risk of $1.66, our target rewards are $3.74 and $9.74. This is a 1:2 and 1:6 risk-reward trade.
In other words, this trade offers nearly 2x to 11x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down with high volume from the breakout level of the descending triangle pattern. 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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