The international food safety company that provides test kits and relevant products to detect dangerous substances in food, Neogen Corporation (NASDAQ: NEOG) seem to be gearing up for a surge as per its latest charts.
#1 Symmetrical Triangle Pattern Breakout: The daily chart shows that the stock has broken out of a Symmetrical Triangle pattern. This is a continuation pattern and is characterized by two converging trend lines connecting a series of sequential peaks and troughs. This pattern is marked on the daily chart as pink lines. The breakout from a symmetrical triangle pattern usually signifies the start of a bullish move.
#2 Price above MA: The price is currently above the short-term moving average of 50-day SMA. This usually implies a possible bullish bias for the stock.
This is a possible bullish setup.
#4 Channel: The daily chart shows that the stock had formed a channel in the last few months, which is marked in orange color lines.
Currently, the stock is nearing the top rail of this channel.
Once its breaks out from the channel, it is a possible bullish sign.
#5 %K above %D: The %K line of the stochastic is currently above the %D line in the daily chart, indicating possible bullishness.
#6 Fibonacci Support: Usually, after an up-move, stocks typically retraces to any of the key Fibonacci levels before surging back again. NEOG had taken support at the 38.2% Fibonacci support level as seen in the weekly chart. So, this seems like a strong support area for the stock.
#7 MACD above Signal Line: In the weekly chart as well, the MACD line (blue color) is currently above the signal line (orange color), indicating a bullish bias.
#8 %K above %D: The %K line of the stochastic is currently above the %D line in the weekly chart too, indicating possible bullishness.
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 NEOG at the current price of $61.10 and the rest if the stock breaks out of the channel at around $65.
TP: Our target prices are $70 and $80 in the next 3-6 months.
SL: To limit risk, place a stop loss at $56.90 (for entry near $61.10) and $61.90 (for entry near $65). Note that this stop loss is on a closing basis.
Our target potential upside is nearly 8% to 31% in the next 3-6 months.
- Entry at $61.10: For a risk of $4.20, the target rewards are $8.90 and $18.90. This is a nearly 1:2 and 1:5 risk-reward trade.
- Entry at $65.00: For a risk of $3.10, the target rewards are $5.00 and $15.00. This is a nearly 1:2 and 1:5 risk-reward trade.
In other words, this trade offers nearly 2x to 5x 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 its sector.
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