The search company that builds self-managed and SaaS offerings for search, logging, security, and analytics use cases, Elastic NV (NYSE: ESTC) seems to be ready for a price surge in the near-term.
Bullish Indications
#1 Flag Pattern Breakout: As you can see from the daily chart, the stock was in an 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.
Daily Chart – ESTC
#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.
#3 MACD above Signal Line: The daily chart shows that the MACD line (blue color) is above the MACD signal line (orange color).
The MACD indicator is also moving up from oversold levels.
This is a possible bullish setup.
#4 Above MA: The stock is currently trading above its 50-day SMA, indicating that the bulls are currently in control.
#5 Bullish Stochastic: The %K line is currently above the %D line in the stochastic.
This indicates possible bullishness.
#6 Fibonacci Support: Usually, after an up-move, stocks typically retraces to any of the key Fibonacci levels before surging back again. ESTC had taken support at the 38.20% Fibonacci support level as seen in the weekly chart before moving above the 50% Fibonacci level. This seems like a strong support area for the stock.
Weekly Chart – ESTC
#7 %K above %D: The %K line of the stochastic is currently above the %D line in the weekly chart as well, indicating 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 the shares of ESTC at the current price of $84.17.
TP: Our target prices are $100 and $110 in the next 3-6 months.
SL: To limit risk, place a stop loss at $77.40. 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.
For a risk of $7.30, our first target reward is $15.30 and the second target reward is $25.30. This is a nearly 1:2 and 1:3 risk-reward trade.
In other words, this trade offers nearly 2x to 3x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down from the flag pattern 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.
Happy Trading!
Tara
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