The technology-driven education company and a leading online K-12 large-class after-school tutoring service provider in China, GSX Techedu Inc. (NYSE: GSX) seems to be ready for a surge as per its latest charts.
#1 Flag Pattern: As seen from the daily chart, the stock was in a strong uptrend after which it started consolidating and was in a narrowing 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 this pattern, it typically continues its previous trend (uptrend in this case).
#2 Trading Above MAs: The stock is currently trading above both its short-term moving average of 50-day SMA and the longer-term moving average of 200-day SMA, which implies that the bulls are currently in control.
#4 Bullish ADX and DI: The ADX indicator shows bullishness because (+DI) is currently greater than (-DI), and ADX has started to move up from below (-DI) and (+DI).
#5 Bullish RSI: The daily chart shows that the RSI is currently above 50 and moving higher. This indicates the strength of the current upmove.
#6 Fibonacci Support: Usually, after an up-move, stocks retrace to any of the key Fibonacci levels before surging back again. GSX’s weekly chart shows that the stock has taken support at the 78.6% Fibonacci support level of the upmove. This is a possible bullish indication.
#7 MACD Above Signal Line: In the weekly chart, the MACD line (light blue color) is currently above the MACD signal line (orange color). This is also a possible bullish sign.
#8 Bullish Aroon: The value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30 in the weekly chart. This indicates possible bullishness.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for GSX is above the resistance level of $45, which is also the previous high of the stock.
TP: Our target prices are $50 and $55 in the next 3-5 months.
SL: To limit risk, place a stop loss near $41.60. Note that this stop loss is on a closing basis.
Our target potential upside is nearly 11% to 22% in the next 3-5 months.
For a risk of $3.40, the target rewards are $5.00 and $10.00. 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 with high volume from the flag pattern and the Fibonacci support level. 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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