The company that provides integrated information technology and digital marketing solutions to the automotive retail and other industries worldwide, CDK Global Inc. (NASDAQ: CDK) seems ready for a price decline in the short term as per the latest charts.
Bullish Indications
#1 Descending Triangle: The daily chart shows that the stock has been forming a descending triangle pattern during the past few months. This is a bearish pattern and is marked in purple color in the daily chart. The stock has currently broken down from the descending triangle pattern. A breakdown from a bearish pattern like descending triangle pattern usually indicates that the stock could move lower in the near-term.
Daily Chart – CDK
#2 Bearish Cross in Chaikin Osc: Whenever there is a crossover on the Chaikin Oscillator from above the zero line to below the zero line, it is termed as a bearish cross. Typically, prices start to decrease whenever this crossover happens.
[hana-code-insert name=’adsense-article’ /] Currently, the Chaikin Oscillator has had a bearish cross which is a bearish sign.#3 MACD below Signal Line: In the daily chart, the MACD line (light blue color) is currently below the MACD signal line (orange color) which is typically considered as a potential sell signal.
#4 Below MAs: The stock is trading below both 50-day and 200-day SMA, indicating bearishness.
#5 Broken uptrend: The weekly chart shows that the uptrend of the stock has been broken.
This uptrend line is shown in blue color in the weekly chart.
The stock is also below the 50-week SMA, indicating that the bears are now in control.
Weekly Chart – CDK
#6 MACD below Signal Line: In the weekly chart as well, the MACD line (light blue color) is currently below the MACD signal line (orange color) indicating bearishness.
#7 CCI down: The CCI is moving down from above 100, indicating bearishness.
Recommended Trade (based on the charts)
Sell Levels: If you want to get in on this trade, you can take short positions on half the intended quantity of shares of CDK at the current price of $61.16. The rest can be shorted if the stock closes below $60.
TP: Our target prices are $50 and $40 in the next 3-6 months.
SL: To limit risk, place a stop loss at $64.80. Note that this stop loss is on a closing basis.
Our target potential downside is 16% to 35% in the next 3-6 months.
- Entry at $61.16: For a risk of $3.64, our target rewards are $11.16 and $21.16. This is a nearly 1:3 and 1:6 risk-reward trade.
- Entry at $60: For a risk of $4.80, our target rewards are $10 and $20. This is a nearly 1:2 and 1:4 risk-reward trade.
In other words, this trade offers nearly 2x to 6x rewards compared to the risks.
Risks to Consider
The stock may reverse its overall trend if it breaks upwards from the descending triangle pattern with high volume. The breakout of the stock could also be triggered in case of any positive news, overall strength in the market, or any regulatory changes in its sector.
Happy Trading!
Tara
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