The automobile company that manufactures specialized motor vehicle chassis and bodies, Spartan Motors Inc. (NASDAQ: SPAR) seems to be getting ready for a price bump as per the latest charts.
Bullish Move – Chart Indications
#1 Falling Wedge Breakout: As you can see from the daily chart of SPAR, the stock had been forming a falling wedge pattern during the past few weeks. This is marked as pink color lines. The stock has currently broken out of the falling wedge pattern after taking support at the bottom of the wedge. A falling wedge is a bullish pattern and a breakout from it implies that the stock may move higher in the short term.
Daily Chart – SPAR
#2 RSI Strong: Relative strength index (RSI) is currently above 50 after moving up from oversold levels. This indicates the strength of the current upmove.
#3 MACD – Price Bullish Divergence: In the daily chart, there is a bullish divergence between MACD and price.
This is marked as blue dotted lines.
While the price formed a lower low, the MACD formed a higher low.
The MACD line (light blue color) has also crossed above the MACD signal line (orange color) which is typically considered as a potential buy signal.
All these points to possible bullishness.
#4 Strong CCI: The CCI has moved from below zero and is currently above 100, indicating possible bullishness.
#5 Bullish Stochastic: The %K line is above the %D line in the stochastic, indicating bullishness.
#6 Flag Pattern: The stock was in a strong uptrend after which it started consolidating and was in a narrow range. This is a classic flag pattern, which is a continuation pattern. The flag pattern is marked in purple color in the weekly chart. Whenever a stock breaks out of the flag pattern, it typically continues its previous trend which is an uptrend in this case. Currently, the stock has broken out of the flag pattern.
Weekly Chart – SPAR
#7 Double Bottom: In the weekly chart of SPAR, a double bottom pattern is being currently formed. This is shown in the figure in pink color. A Double bottom pattern is a bullish reversal pattern, indicating that the stock would possibly move upwards shortly.
#8: Bullish CCI: In the weekly chart, CCI is moving up, indicating bullishness.
#9 Rising Stochastic: The stochastic is moving up from below 20. The %K line is also above the %D 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 the SPAR at the current price of $15.10.
TP: Our target prices are $20 and $25 in the next 4-6 months.
SL: To limit risk, place a stop loss below $12.90. Note that the stop loss is on a closing basis.
Our target potential upside is 32% to 66% in the next 4-6 months. For a risk of $2.20, our first target reward is $4.90 and second target reward is $9.90. This is a nearly 1:2 and 1:5 risk-reward trade.
In other words, this trade offers 2x to 5x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down from the falling wedge pattern 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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