The multinational food processing company specializing in producing private label packaged foods, TreeHouse Foods Inc. (NYSE: THS) seem to be gearing up for a surge as per its latest charts.
#1 Ascending triangle pattern: THS’s daily chart shows that the stock is currently forming an Ascending Triangle pattern. An Ascending Triangle pattern is a bullish pattern. This is marked on the daily chart in pink color. The breakout from an ascending triangle pattern generally indicates the start of a bullish trend. The breakout level also acts a good support level.
#2 Trading Above MAs: The stock is currently trading above both its 50-day and 200-day SMA, which implies that the bulls are currently in control.
#4 %K above %D: The %K line of the stochastic is currently above the %D line, indicating bullishness.
#5 IH&S Pattern: From the daily chart of TERP, we can see that the stock has been consolidating in the form of an Inverted Head and Shoulders (IH&S) pattern.
This is marked in the chart in orange color.
An IH&S pattern is a bullish pattern. A breakout from an IH&S pattern is usually the sign of an upcoming bullish move.
#6 Bullish Aroon: The value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30. This indicates possible bullishness.
#7 Downtrend Almost Broken: The weekly chart shows that the stock is about to break out from the prevailing downtrend. This downtrend line is marked in purple color in the weekly chart below. A break out from downtrend is usually a bullish sign.
#8 MACD above Signal Line: In the weekly chart as well, the MACD line is above the MACD signal line which is a bullish signal. The stock is also trading above its 50-week SMA, indicating that the bulls are still in control.
#9 %K above %D: The %K line of the stochastic is currently above the %D line in the weekly chart as well, indicating possible bullishness.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the recommended buy level remains the same, but note that the timings for buying the stock are slightly different.
You can purchase half the intended quantity of shares of THS if the stock breaks out from the IH&S pattern and ascending triangle pattern and closes above $56.20.
The rest of the shares can be purchased when the stock retests to the breakout level of the IH&S pattern again at $56.20. This is to minimize the possibility of losses from a false breakout.
TP: Our target prices are $65 and $75 based on the breakout from the Ascending Triangle pattern.
SL: To limit risk, place a stop loss near $50.90. Note that this stop loss is on a closing basis.
Our target potential upside is 16% to 33% in the next 4-6 months. For a risk of $5.30, the target rewards are $8.80 and $18.80. This is a nearly 1:2 and 1:4 risk-reward trade.
In other words, this trade offers nearly 2X to 4X more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down with high volume from the ascending 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 its sector.