This Stock Looks Ready For A Correction in the Near-Term

The well-known craft brewer in the United States, Boston Beer Company Inc. (NYSE: SAM) seems to be poised for a decline in its price in the near term as per its latest charts.

Bearish Indications

#1 Descending Triangle Pattern Breakdown: 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 – SAM

#2 Price below MAs: The stock price is currently below both 50-day as well as 200-day SMA. This is a bearish sign.

#3 MACD below signal line: The MACD line (blue color) is currently below the MACD signal line (orange color), indicating bearishness.

#4 %K below %D in Stochastic: The %K line is now below the %D line in stochastic. This indicates possible bearishness.

#5 Broken Channel: The weekly chart shows that the stock has currently broken down from a channel.

This channel is shown in purple color in the weekly chart.

The stock is also below the 50-week SMA, indicating that the bears are now in control.

Weekly Chart – SAM

#6 %K below %D in Stochastic: The %K line is currently below the %D line in stochastic of the weekly chart as well. This indicates possible bearishness.

#7 MACD below signal line: The MACD line (blue color) is currently below the MACD signal line (orange color) in the weekly chart, indicating bearishness.

#8 Bearish RSI: The weekly chart shows that the RSI is currently below 50 and moving down. This indicates possible bearishness.

#9 Double Top Pattern: The weekly chart shows that a double top pattern is also being formed for the stock. This pattern is shown in orange color. This also indicates possible bearishness.

Recommended Trade (based on the charts)

Sell Levels: If you want to get in on this trade, you can take short positions on SAM if the stock moves back to the breakdown level of the descending triangle pattern at around $263.

Note: For those with higher risk appetite, you can enter short positions on half the intended quantity of stocks at the current price of $235.03.

TP: Our target prices are $220 and $200 in the next 3-6 months.

SL: To limit risk, place a stop loss at $278 (for entry near $263) and $250 (for entry near $235.03). Note that this stop loss is on a closing basis.

Our target potential downside is 15% to 24% in the next 3-6 months.

  • Sell at $235.03: For a risk of $14.97, our target reward (TP#2) is $35.03. This is a nearly 1:2 risk-reward trade.
  • Sell at $263: For a risk of $15, our target rewards are $43 and $63. This is a nearly 1:3 and 1:4 risk-reward trade.

In other words, this trade offers nearly 2x to 4x 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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