The diversified real estate development and agribusiness company headquartered in Lebec, California, Tejon Ranch Company (NYSE: TRC) seems to be getting ready for a price bump after a slight correction as per the latest charts.
Bullish Move – Chart Indications
#1 Resistance-Turned-Support level: As you can see from the daily chart of TRC, there is a long-term resistance-turned-support level for the stock nearby. This is marked as a pink dotted line in the daily chart. This seems like a good level for the stock to bounce upwards.
Daily Chart – TRC
#2 Support at 200-day SMA: The 200-day SMA (blue line) is also near the long-term resistance-turned-support level. This makes this a good support area.
Presently, the 14-day RSI reading for DAN is near 40.
This indicates that the stock is near oversold levels and a possible reversal of the downtrend is imminent.
#4 Breakdown from Bearish Patterns: The daily chart shows that the stock was forming a rising wedge pattern during the past few months.
This is a bearish pattern and is marked in purple color in the daily chart.
The stock had also formed a double top pattern (marked in orange color), which is another bearish pattern. The stock has currently broken down from the rising wedge pattern and double bottom pattern and is moving down. In the near-term, the stock may take support near the support area and bounce higher from that level.
#5 Overall trend up: The overall trend is up as the stock has been forming higher highs and higher lows during the past few weeks. The stock is also trading above both 50-week and 200-week SMA. These are all bullish signs.
Weekly Chart – TRC
#6 Cup and Handle Pattern: The stock’s weekly chart shows that it has been forming a cup and handle pattern during the past several months. This is marked in the chart in blue color. The cup and handle pattern is a consolidation and breakout pattern. Since this pattern is being formed for more than a year now, it indicates that the pattern is very strong. The cup was formed between December 2016 and June 2018. Currently, the handle is being formed. If the stock breaks out of the cup and handle pattern with high volume, the stock can possibly give high returns.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, purchase shares of TRC if it corrects to the long-term resistance-turned-support level at around $22.50.
TP: Our target prices are $25 and $35 in the next 3 to 6 months.
SL: To limit risk, place a stop loss at $21.00. Note that the stop loss is on a closing basis.
Our target potential upside 11% to 56% in the next 3-6 months.
For a risk of $1.50, our first target reward is $2.50 and the second target reward is $12.50. This is a 1:2 and 1:8 risk-reward trade. In other words, this trade offers 2x to 8x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down with high volume before forming the cup and handle 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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