The American worldwide manufacturer and marketer of lighting-class LEDs, lighting products and products for power and radio frequency applications, Cree, Inc. (NASDAQ: CREE) seems to be ready for a price surge in the near-term.
Bullish Indications
#1 Flag Pattern Breakout: As you can see from the daily chart, the stock was in an 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 has broken out of the flag pattern, which is a possible bullish sign.
Daily Chart – CREE
#2 MACD above Signal Line: The daily chart shows that the MACD line (blue color) is above the MACD signal line (orange color). The MACD indicator has also moved up from oversold levels. This is a possible bullish setup.
#4 Bullish Aroon: The value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30 in the daily chart. This indicates possible bullishness.
#5 Bullish Stochastic: The %K line is currently above the %D line in the stochastic.
This indicates possible bullishness.
#6 Higher Highs: The weekly chart shows that the stock has been forming higher highs and higher lows. This is a possible bullish sign.
Weekly Chart – CREE
#7 %K above %D: The %K line of the stochastic is currently above the %D line in the weekly chart as well, indicating bullishness.
#8 RSI Strong: Relative strength index (RSI) is currently above 50 in the weekly chart. This indicates the strength of the current upmove.
#9 Above MAs: The stock is currently trading above its 50-week as well as 200-week SMA as well, indicating possible bullishness.
#10 Bullish ADX: The ADX line is currently below –DI and +DI lines and is starting to move up. The +DI line is currently above –DI line. All these indicate possible bullishness.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, you can purchase the shares of CREE at the current price of $62.25.
TP: Our target prices are $72 and $80 in the next 3-6 months.
SL: To limit risk, place a stop loss at $56.40. Note that this stop loss is on a closing basis.
Our target potential upside is nearly 16% to 29% in the next 3-6 months.
For a risk of $5.85, our first target reward is $9.75 and the second target reward is $17.75. This is a nearly 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 flag pattern 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 new government rules or regulatory changes in its sector.
Happy Trading!
Tara
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