Trade Recommendation: Liberty Latin America Ltd
- Liberty Latin America’s price action reveals that the stock is very much driven by technicals, with key levels serving as important supports or resistances for extended periods of time.
- Over the last two years, the stock has declined from nearly $45 in May 2016 to below $19 on April 12, 2018. One pattern is quite apparent – prior supports turn into significant resistances during subsequent rallies (support-turned-resistances – violet trendlines in Figure 1).
- Since November’16, the stock has found support in the $19.50 – $20 area over half a dozen times (green trendline and arrows in Figure 2; note the trendline is placed at the higher end of the range – at just below $20). After breaking below the support on March 28, the stock attempted to break back above the green trendline and failed (yellow arrow).
- The stock continues to falter at its 2018 resistance (trendline formed by connecting several lower highs since February – red trendline)
Figure 1. LILAK Daily Chart
Figure 2. LILAK Daily Chart
- The break below $19.50 activated a downward target of $15 (using 2018’s trading range with a $24 high – purple trendline).
- A more aggressive $12 price target can be obtained by using the Feb’17 and Aug’17 highs as the top of the trading range (orange trendline).
- Short-term: Bearish as long as the stock remains below its 2018 resistance (red trendline)
- Intermediate-term: Bearish as long as the stock remains below $20
- Short the stock in the $18.85 – $19 range (currently at $18.93 at 1:15 pm EST on April 12, 2018).
- Target: $15.50 ($0.50 higher than the more conservative target in case the downward projection from the trading channel is made by using a tighter range).
- Stop: A close above $20
Benefit of Recommended Trade
- Favourable risk-reward profile (roughly a 1: 2.6 ratio) assuming a stop at $20.20 (i.e. the stock will move at least 1% higher before EOD after breaking $20) and a $15.50 target.
Disclosure: No position in LILAK.