The American nationwide automotive retailer headquartered in Medford, Oregon and the third largest automotive retailer in the United States, Lithia Motors Inc. (NYSE: LAD) seems to be getting ready for a price bump as per the latest charts.
Bullish Move – Chart Indications
#1 Breakout from Consolidation Area: The daily chart shows that the stock has been trading within a range since the past several months. This indicates consolidation. The consolidation area is marked as a green color rectangle in the daily chart. Currently, the stock has broken out of this consolidation area. A breakout from this consolidation area generally indicates bullishness.
Daily Chart – LAD
#2 Above MAs: The stock is currently trading above its 50-day SMA as well as 200-day SMA. This indicates overall bullishness for the stock.
#4 MACD above Signal Line: In the daily chart, the MACD (light blue color) is currently above the MACD signal line (orange color).
This indicates a possible bullish setup.
#5 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.
#6 Double Bottom Pattern: From the weekly chart, we can see that the stock had formed a double bottom pattern. This pattern is marked in pink color in the chart. A double bottom pattern is a strong bullish pattern and breakout from the pattern usually foretells the possibility of an upmove in the short term. Currently, the stock has broken out of the double bottom pattern.
Weekly Chart – LAD
#7 Bullish Stoch: The %K line is currently above the %D line of the stochastic in the weekly chart as well. This usually indicates bullishness.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for LAD is if it corrects to a price of around $144.
However, for those with higher risk appetite, you can purchase one-fourth the intended quantity of shares of LAD at the current price if it opens above yesterday’s close. This translates to a price of around $153.
TP: Our target prices are $155 and $170 in the next 3-6 months.
SL: To limit risk, place a stop loss near $137 (for entry near $144) and $141 (for entry near $153). Note that the stop loss is on a closing basis.
Our target potential upside is 8% to 18% in the next 3-6 months.
- Entry at $144: For a risk of $7.00, our first target reward is $11.00 and the second target reward is $26.00. This is a nearly 1:2 and 1:4 risk-reward trade.
- Entry at $153: For a risk of $12.00, our second target reward is $17.00. This is a nearly 1:2 risk-reward trade.
In other words, this trade offers 2x to 4x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down from the consolidation are with high volume. 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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