The US-based technology company that provides cloud-based services for remote control, home automation and monitoring services, AlarmCom Hldg Inc. (NASDAQ: ALRM) seems to be poised for a price surge according to its charts.
Bullish Indications
#1 Symmetrical Triangle Pattern: The daily charts shows that a symmetrical triangle pattern is being formed for the stock. This is marked in purple color lines. A symmetrical triangle pattern represents a period of consolidation before the price breaks out. This is typically formed when there is indecision in the price movements and uncertainty among the buyers and sellers. Once a breakout from the upper trend line occurs, it usually signifies the start of a new bullish trend.
Daily Chart – ALRM
#2 Gap Support: The stock is currently moving up after taking support near the gap support level (shown as a pink dotted line). This seem like a good support area for the stock.
This implies that the bulls are in control.
#4 Strong RSI: The RSI is currently above 50 and moving up in the daily chart, indicating the strength of the current upmove.
#5 Bullish Stochastic: The %K (blue) line of stochastic is currently above the %D (Orange) line.
The value of Stochastic Oscillator was below 20 and is currently moving up from the oversold levels. All these are possible bullish indications.
#6 Strong Supports in Weekly chart: The weekly chart shows that the stock has good support levels close-by. The stock has trendline support as well as the support of the 50-week SMA. This means that the stock may bounce back and move higher from this level soon.
Weekly Chart – ALRM
#7 CCI moving up: In the weekly chart, the CCI is moving up after reaching below -100. This is also a bullish sign.
Recommended Trade (based on the charts)
Buy Price: If you want to get in on this trade, you can buy half the intended quantity of the stock at the current price of $49.80 and the rest after the breakout from the symmetrical triangle pattern at around $52.50.
TP: Our target prices are $58 and $70 in the next 4-6 months.
SL: To limit risk, place a stop loss at $47.10 (for entry near $49.80) and $49.60 (for entry near $52.50). Note that this stop loss is on a closing basis.
Our target potential upside is almost 10% to 41% in the next 4-6 months.
- Entry at $49.80: For a risk of $2.70, our target rewards are $8.20 and $20.20. This is a 1:3 and 1:7 risk-reward trade.
- Entry at $52.50: For a risk of $2.90, our target rewards are $5.50 and $17.50. This is a 1:2 and 1:6 risk-reward trade.
In other words, this trade offers nearly 2x to 7x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down with high volume from the symmetrical 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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