The online personal styling service in the United States that uses recommendation algorithms and data science to personalize clothing items based on size, budget, and style, Stitch Fix Inc. (NASDAQ: SFIX) 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 was recently forming 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 its 50-day as well as 200-day SMA, which implies that the bulls are currently in control.
#4 MACD above signal line: As you can see from the daily chart, the MACD line (blue color) is currently above the signal line (orange color). This is a bullish indication.
#5 Bullish ADX and DI: The ADX line has currently moved up from below –DI and +DI lines. The +DI line and the ADX lines are also now above the –DI line.
All these indicate possible bullishness.
#6 IH&S Pattern: As you can see from the weekly chart, the stock has been forming an Inverted Head and Shoulders (IH&S) pattern. This IH&S pattern is marked in the chart in orange color. An IH&S pattern is a strong bullish pattern and a breakout from this pattern indicates that the stock may move higher in the short term.
#7 Bullish MACD: The MACD line is above the MACD signal line in the weekly chart as well. This indicates possible bullishness.
#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, the ideal buy level for SFIX is above the previous high, which translates to a price of $31.40.
TP: Our target prices are $35 and $40 in the near-term.
SL: To limit risk, place a stop loss near $29.00. Note that this stop loss is on a closing basis.
Our target potential upside is 12% to 27% in the next 3-6 months.
For a risk of $2.40, the target rewards are $3.60 and $8.60. 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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