The largest independent provider of specialty pharmacy services in the United States, Diplomat Pharmacy Inc. (NYSE: DPLO) seem poised for a price surge according to its latest charts.
Bullish Indications
#1 Symmetrical Triangle Pattern Breakout: A symmetrical triangle pattern is seen in the daily chart of DPLO. This pattern is shown as purple lines. It 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. Currently, the stock has broken out of the symmetrical triangle pattern, indicating bullishness.
Daily Chart – DPLO
#2 %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.
#3 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.
#4 Pennant Pattern: As seen from the weekly chart below, the stock was in a strong uptrend after which it started consolidating and was in a narrowing range.
This is a classic pennant pattern and is marked in the chart below in purple color.
Currently, the stock is trading near the lower end of the pennant.
A pennant is a continuation pattern. Whenever a stock breaks out of the pennant pattern, it typically continues its previous trend (uptrend in this case).
Weekly Chart – DPLO
#5 Oversold CCI: The value of CCI in the weekly chart shows that it is moving up after reaching oversold levels. This is a possible bullish sign.
#6 Oversold RSI: The RSI in the weekly chart was near the oversold level and is currently moving up, further indicating the price may reverse to the upside.
Recommended Trade (based on the charts)
Buy Price: If you want to get in on this trade, you can purchase the shares of DPLO at a price between $17.80 and the current price of $19.11.
TP: Our target prices are $28 and $35 in the next 4-6 months.
SL: To limit risk, place a stop loss at $16.80. Note that this stop loss is on a closing basis.
Our target potential upside is almost 47% to 97% in the next 4-6 months.
- Entry at $17.80: For a risk of $1.00, our target rewards are $10.20 and $17.20. This is a 1:10 and 1:17 risk-reward trade.
- Entry at $19.11: For a risk of $2.31, our target rewards are $8.89 and $15.89. This is a 1:4 and 1:7 risk-reward trade.
In other words, this trade offers nearly 4x to 17x 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