The well-known supplier of automotive replacement parts, automotive hardware, and brake products, Dorman Products Inc. (NASDAQ: DORM) seem poised for a price surge according to its latest charts.
#1 Symmetrical Triangle Pattern Breakout: The stock has currently broken out of a symmetrical triangle pattern as seen in the daily chart of DORM. This pattern represents a period of consolidation before the price breaks out and is typically formed when there is an 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.
#2 CCI moving up: The daily chart of DORM shows that CCI is moving up. This is a bullish sign.
This indicates that buyers controlled the price of the stock from the opening bell to the close of the day, and is considered very bullish.
#4 Above MAs: The stock price is currently above both 50-day and 200-day SMA. This is a bullish sign.
#5 %K above %D: In the daily chart, the %K line (light blue color) is above the %D line (orange color) in the stochastics. This is a possible bullish sign.
#6 Support at Fibonacci Level: The weekly chart of DORM shows that the stock had been on an uptrend after which it has been correcting. It has now taken support near the 50% Fibonacci retracement level of this move and is moving upwards. Stocks usually retrace to any of the key Fibonacci levels before resuming its upmove. So, this 50% retracement level seems like a good support area.
#7 Downtrend Broken: The weekly chart of DORM shows that the short-term downtrend has been broken (marked as a blue line) and the stock is poised for an upmove.
#8 %K above %D: In the weekly chart, the %K line (light blue color) is above the %D line (orange color) in the stochastics. This is a possible 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 $73.11 and the rest if the stock corrects to the breakout level of the symmetrical triangle pattern at around $72.
TP: Our first prices are $90 and $100 in the next 4-6 months.
SL: To limit risk, place a stop loss at $66.80. Note that this stop loss is on a closing basis.
Our target potential upside is almost 23% to 39% in the next 4-6 months.
- Entry at $72: For a risk of $5.20, our target rewards are $18 and $28. This is a 1:3 and 1:5 risk-reward trade.
- Entry at $73.11: For a risk of $6.31, our target rewards are $16.89 and $26.89. This is a 1:3 and 1:4 risk-reward trade.
In other words, this trade offers nearly 3x to 5x 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.
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