The pipeline transportation of crude oil company headquartered in Kansas, Tallgrass Energy LP (NYSE: TGE) seems to be ready for a price surge in the near-term.
#1 Channel Breakout: The daily chart of TGE shows that the stock was trading within a downtrend channel for the past few months. This channel is marked on the daily chart in purple color. Currently, the stock has broken out of the channel with high volume. This seems like a possible bullish indication.
#2 Bullish ADX and DI: The ADX indicator shows bullishness because (+DI) is greater than (-DI). This points to a possible upmove in the near-term.
This is a possible bullish setup.
#4 Above MAs: The stock is currently trading above both 50-day and 200-day SMA, indicating that the bulls are currently in control.
#5 Bullish RSI: The RSI is currently above 50 and moving up, indicating possible bullishness.
#6 Flag Pattern Breakout: As you can see from the weekly chart, the stock was in a strong uptrend after which it started consolidating and was in a narrow range.
This is a classic flag pattern and is marked in the chart in purple color. A Flag is a continuation pattern. Whenever a stock breaks out of the flag pattern, it typically continues its previous trend (uptrend in this case). Currently, the stock has broken out of the flag pattern, which is a bullish sign.
#7 Rising Stochastic: The %K line is currently above the %D line in the stochastic. This indicates possible bullishness.
#8 RSI Strong: Relative strength index (RSI) is currently above 50 after moving up from oversold levels in the weekly chart. This indicates the strength of the current upmove.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, you can purchase half the intended quantity of shares of TGE at the current price of $23.43. The rest can be purchases if the stock corrects to a price around $22 to $23.
TP: Our target prices are $26 and $35 in the next 3-6 months.
SL: To limit risk, place a stop loss at $22.30 (entry at $23.43) and $21.30(entry at $22). Note that this stop loss is on a closing basis.
Our target potential upside is nearly 11% to 59% in the next 3-6 months.
- Entry at $22: For a risk of $0.70, our first target reward is $4.00 and the second target reward is $13.00. This is a 1:6 and 1:19 risk-reward trade.
- Entry at $23.43: For a risk of $1.13, our first target reward is $2.57 and the second target reward is $11.57. This is a 1:2 and 1:10 risk-reward trade.
In other words, this trade offers nearly 2x to 19x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down from the channel 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 new government rules or regulatory changes in its sector.
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