After jumping nearly 8.5% in Wednesday’s trading, the charts show that Sprint (S) could have a lot further to go in the short term. Profit Scanner powered by Recognia identified that on Feb. 5, Sprint stock put in a bullish continuation wedge, a short-term pattern that indicates higher prices ahead.
This pattern is expected to resolve within approximately 28 days to an upside target of $11.10 to $11.70 for Sprint stock.
The bullish continuation pattern tells traders that after a temporary interruption, the prior uptrend that Sprint stock made at the beginning of 2014 is set to continue. A bullish continuation wedge represents a temporary interruption to an uptrend, taking the shape of two converging trendlines both slanted downward against the trend. While it may appear the bears are taking over the stock, in the end the bulls win as the stock makes a move above the upper trendline and resumes moving up.
If Sprint stock hits the low end of that target, it would mean almost a 40% return for traders from Thursday’s opening prices.
Sprint is a highly optionable stock, so traders who understand the leverage that options provide may prefer to buy a short-term call option. More aggressive traders could look at spot-month February calls in advance of Sprint’s Feb. 11 earnings, while more risk-averse traders could buy a little more time and look to the March or May series. (It should be noted that technical analysis does not factor in fundamental data points, such as earnings figures, but it’s common for the technical pattern to indicate a move in a stock that coincides with an event such as an earnings report.)
As always, traders should look for confirmation of the trend and be mindful of any moves that refute the bullish continuation wedge. It’s important to note that in July 2013, a majority of the company was purchased by Japanese telecommunications company SoftBank Corp., although the remaining shares of the company continue to trade on the NYSE.
This is noteworthy because it means that Sprint stock’s most recent price history only goes back to July 2013. So, while traders would typically look for Sprint stock prices drop below a key support level, such as the 200 day moving average, in this case the 100 day moving average will have to suffice.
That 100 day moving average resides around $8, so if Sprint stock closes below this level, it could signal a temporary pullback or it might invalidate the bullish continuation wedge. If such a pullback occurs, look at the volume to indicate which scenario it might be. If pricing pulled back on high volume, it could signify that the original bullish pattern has failed. If there isn’t much volume, it could simply be a temporary pullback until the price breaks out.
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