The education management organization that provides online education by selling online schooling and curricula, K12 Inc. (NYSE: LRN) shows signs of an upcoming price surge according to its latest charts.

Bullish Indications

#1 Consolidation and Breakout: The daily chart shows that the stock has been trading within a range since the past several months. This area is marked as a pink rectangle in the daily chart. Currently, the stock has broken out of this range, indicating possible bullishness.

Daily Chart – LRN

#2 Above MA: The stock is currently trading above its 50-day SMA as well as 200-day SMA. This indicates overall bullishness for the stock.

 #3 MACD above Signal Line: The daily chart shows that the MACD (light blue color) is above the MACD signal line (orange color).

This indicates a potentially bullish setup.

#4 Strong RSI: RSI is above 50 and moving up, indicating strength.

#5 %K above %D: The %K line of the stochastic is currently above the %D line, indicating bullishness.

#6 IH&S Pattern: The weekly chart shows that the stock has been forming an Inverted Head and Shoulders (IH&S) pattern over the past several weeks. This is a strong bullish pattern and is marked in orange color lines. After the breakout from the IH&S pattern, the stock may move higher in the short term.

Weekly Chart – LRN

#7 MACD above Signal Line: As you can see from the weekly chart, the MACD line (blue color) is currently above the signal line (orange color), indicating a bullish bias.

#8 Bullish Aroon: The value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30 in the weekly chart. This indicates possible bullishness.

Recommended Trade (based on the charts)

Buy Price: If you want to get in on this trade, you can purchase shares of LRN if it corrects back to the breakout level of $18. For those with a higher risk appetite, you can buy one forth the intended quantity of shares at the current price of $20.77.

TP: Our target prices are is $25 and $30 in the next 3-6 months.

SL: To limit risk, place a stop loss at $16.50. Note that this stop loss is on a closing basis.

Our target potential upside is nearly 39% to 67% in the next 3-6 months.

  • Entry at $18.00: For a risk of $1.50, our target rewards are $7.00 and $12.00. This is a 1:5 and 1:8 risk-reward trade.
  • Entry at $20.77: For a risk of $4.27, our target reward (TP#2) is $9.23. This is a 1:2 risk-reward trade.

In other words, this trade offers nearly 2X to 8X more potential upside than downside.

Risks to Consider

The stock may reverse its overall trend if it breaks down with high volume from the consolidation area and IH&S 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 regulatory changes in the sector.

Happy Trading!