The Ohio-based company that manufactures and sells consumer lawn, garden, and pest control products, Scotts Miracle-Gro Co (NYSE: SMG) seems to be gearing up for a surge as per its latest charts.
#1 Ascending Triangle Pattern Breakout: The daily chart shows that the stock has currently broken out of an Ascending Triangle pattern. An Ascending Triangle pattern is a bullish pattern. This is marked on the daily chart in purple color lines. A breakout from an ascending triangle pattern generally indicates the start of a bullish trend. The breakout level also acts as 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 MACD above Signal Line: The MACD line (light blue color) is currently above the MACD signal line (orange color) which is typically considered as a potential buy signal.
#5 Bullish Aroon: The value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30 in the daily chart. This indicates bullishness.
#5 Cup and Handle Pattern Breakout: The weekly chart shows that the stock has broken out of a cup and handle pattern. This is marked in the chart in pink color. A cup and handle pattern is a consolidation and breakout pattern. Since this pattern is being formed for more than a few months now, it indicates that the pattern is very strong. Whenever a stock breaks out of the cup and handle pattern, it typically moves higher.
#6 Other Bullish Indications: There are also various other positive indications like the bullish ADX and DI, bullish MACD, and price above MAs in the weekly chart. These all point to possible bullishness.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for SMG is in two scenarios.
- If the stock corrects to the breakout level of the ascending triangle pattern at around $112.30
- If the stock trades above yesterday’s high, at around $119.50.
TP: Our target prices are $125 and $135 based on the breakout from the Ascending Triangle pattern.
SL: To limit risk, place a stop loss near $107.50 (for entry near $112.30) and $116.00 (for entry near $119.50). Note that the stop loss is on a closing basis.
Our target potential upside is 5% to 20% in the next 4-6 months.
- Entry at $112.30: For a risk of $5.30, the target rewards are $12.70 and $22.70. This is a nearly 1:2 and 1:4 risk-reward trade.
- Entry at $119.50: For a risk of $3.50, the target rewards are $5.50 and $15.50. 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.
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