The company that provides rapid manufacturing of low-volume 3D printed, CNC-machined, sheet metal, and injection-molded custom parts for prototyping and short-run production, Proto Labs Inc. (NYSE: PRLB) seems to be poised for a decline in its price in the near term as per its latest charts.
Bearish Indications
#1 Head and Shoulders Pattern: The daily chart shows that the stock has broken down from a head and shoulders pattern with high volume. This is a bearish pattern and is marked in orange color in the daily chart. Once a stock breaks down from a head and shoulders pattern, it usually moves lower in the near-term.
Daily Chart – PRLB
#2 Price below MAs: The price is currently below both 50-day as well as 200-day SMA, indicating bearishness.
[hana-code-insert name=’adsense-article’ /]#3 MACD below signal line: The MACD line (blue color) is currently below the MACD signal line (orange color), indicating bearishness.
#4 Bearish Stochastic: The stochastic in the daily chart shows that the %K line is below the %D line. This is also a bearish sign.
#5 Bearish Aroon: The value of Aroon Up (orange line) is below 30 while Aroon Down (blue line) is above 70. This indicates bearishness.
#6 Symmetrical Triangle Pattern Breakdown: The daily charts also shows that a symmetrical triangle pattern breakdown has occurred.
This pattern is marked in purple color lines. A symmetrical triangle pattern indicates a period of consolidation before the price breaks in either direction. This is typically formed when there is indecision in the price movements and uncertainty among the buyers and sellers. Once a breakdown from the lower trend line occurs, it usually signifies the start of a new bearish trend. Currently, the stock has broken down from the symmetrical triangle pattern. This is a possible bearish sign.
#7 Pennant Pattern Breakdown: The weekly chart shows that the stock has currently broken down from a pennant pattern. This is marked in purple color lines. A breakdown from the pennant pattern usually indicates bearishness.
Weekly Chart – PRLB
#8 %K below %D in Stochastic: The stochastic in the weekly chart also shows that the %K line is below the %D line. This also indicates bearishness.
#9 MACD below signal line: The MACD line (blue color) is currently below the MACD signal line (orange color) in the weekly chart as well, indicating bearishness.
Recommended Trade (based on the charts)
Sell Levels: If you want to get in on this trade, the ideal sell level for PRLB is between the price range of $115 to $120.
TP: Our target prices are $108 and $100 in the next 4-6 months.
SL: To limit risk, place a stop loss at around $124 (entry near $120) and $119.50 (entry near $115). Note that this stop loss is on a closing basis.
Our target potential downside is almost 6% to 17% in the next 4-6 months.
- Entry near $120: For a risk of $4.00, our target rewards are $12.00 and $20.00. This is a nearly 1:3 and 1:5 risk-reward trade.
- Entry near $115: For a risk of $4.50, our target rewards are $7.00 and $15.00. This is a nearly 1:2 and 1:3 risk-reward trade.
In other words, this trade offers nearly 2x to 5x rewards compared to the risks.
Risks to Consider
The stock may reverse its overall trend if it comes back to the breakdown level of H&S pattern and move upwards. 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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