The provider of Voice over IP products which include cloud-based voice, contact center, video, mobile and unified communications for businesses, 8×8, Inc. (NYSE: EGHT) seems to be poised for a price surge as per its latest charts.
#1 Falling Wedge Breakout: As you can see from the daily chart of EGHT, the stock was forming a falling wedge pattern for the past few months. This is marked as pink color lines. The stock has currently broken out of the falling wedge pattern after taking support at the bottom of the wedge. A falling wedge is a bullish pattern and a breakout from it implies that the stock may move higher in the short term.
#2 Price above MA: The daily chart shows that the stock is currently trading above its 50-day SMA. This is also a bullish sign.
#4 Bullish ADX and DI: The ADX indicator shows bullishness because (+DI) is greater than (-DI), ADX and (+DI) are above (-DI), and ADX is starting to move up from below (-DI) and (+DI).
#5 Bullish Aroon: The value of Aroon Up (orange line) is above 70, while Aroon Down (blue line) is below 30. This indicates possible bullishness.
#6 Trendline support: As you can see from the weekly chart, the stock has been on an uptrend, as it has been forming higher highs and higher lows for the past several months. This trendline is shown in purple color in the daily chart below. The stock is currently moving up after taking support on the trendline. This is a possible bullish sign.
#7 RSI Strong: Relative strength index (RSI) is currently moving up from oversold levels and nearing 50. This indicates the strength of the current upmove.
#8 Bullish Stoch: The %K line of the stochastic is above the %D line in the weekly chart, 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 EGHT at the current price of $20.10.
The rest of the shares can be purchased if the stock moves above $22 or corrects to $18.
TP: Our target prices are $26 and $32 in the next 4 to 6 months.
SL: To limit risk, place the stop loss below $16.40 (for entry near $18 and $20.10) and $18.80 (for entry near $22). Note that stop loss is on a closing basis.
Our target potential upside is 18% to 59% in the next 4-6 months.
- Entry near $18: For a risk of $1.60, our target rewards are $8.00 and $14.00. This is a 1:5 and 1:9 risk-reward trade.
- Entry near $20.10: For a risk of $3.70, our target rewards are $5.90 and $11.90. This is a 1:2 and 1:3 risk-reward trade.
- Entry near $22: For a risk of $3.20, our target reward (TP#2) is $10. This is a 1:3 risk-reward trade.
In other words, this trade offers nearly 2x to 9x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down from the falling wedge pattern and trendline support with a high volume. 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.
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