The energy services holding company for a natural gas utility and other, non-regulated companies, South Jersey Industries Inc. (NYSE: SJI) seems to be ready for a price correction in the near term according to its latest charts.
Bullish Move – Chart Indications
#1 Rising Wedge Pattern: The daily chart shows that the stock has been forming a rising wedge pattern during the past few weeks. This is a bearish pattern and is marked in purple color in the daily chart. The stock is currently near the top of the rising wedge pattern. Once the stock breaks down from this pattern, it has the potential to move lower in the near-term.
Daily Chart -SJI
#2 Overbought RSI moving down: The daily chart shows that the RSI is moving down after reaching near overbought levels. This indicates the stock may move lower.
[hana-code-insert name=’adsense-article’ /]#3 Bearish Candle: The latest candle is a bearish candle with a long upper shadow (shooting star).This indicates that there was a selling pressure at higher prices.
The stock had also closed down from the day’s high. This is another bearish sign.
#4 CCI Moving Down: The CCI is currently moving down from overbought levels.
This usually means that the stock may reverse to downside soon.
#5 Bearish Divergence between RSI and Price: The daily chart shows that there is a bearish divergence between RSI and price. This is marked as blue dotted lines. While the price was making higher highs, RSI was forming lower highs. This is a possible bearish sign.
#6 Double Top Pattern: The stock is recently forming a double top pattern. It is a bearish pattern and is marked in orange color in the chart. This is a possible bearish sign.
#7 Bearish Stochastic: The stochastic is moving down in the weekly chart. The %K line is also below the %D line. All these indicate possible bearishness.
Weekly Chart – SJI
#8 Moving down from Resistance Level: There is a long-term resistance level in the weekly chart. This is marked as a pink dotted line. The stock attempted to cross this level and moved down, leaving a long shadow on the top of this week’s candle. This indicates possible weakness.
Recommended Trade (based on the charts)
Sell Levels: If you want to get in on this trade, the ideal sell level for SJI is at the current price of $36.04.
TP: Our target prices are $31 and $26.
SL: To limit risk, place a stop loss at $37. Note that this stop loss is on a closing basis.
Our target potential downside is 14% to 28% in the next 3-6 months. For a risk of $0.96, our target rewards are $5.04 and $10.04. This is a nearly 1:5 and 1:10 risk-reward trade.
In other words, this trade offers nearly 5x to 10x rewards compared to the risks.
Risks to Consider
The stock may reverse its overall trend if it breaks upwards from the rising wedge 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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