The airline holding company based in SeaTac, Washington that owns Alaska Airlines and Horizon Air, Alaska Air Group, Inc. (NYSE: ALK) seems to be poised for a decline in its price in the near term as per its latest charts.
#1 Head and Shoulders Pattern: As you can see from the daily chart below, the stock been recently forming a head and shoulders (H&S) pattern. This pattern is marked in orange color lines. A head and shoulders pattern is a bearish pattern and a breakdown from it usually indicates that the stock may move lower.
#2 Bearish ADX and DI: The ADX and DI indicate bearishness. This is because (+DI) < (-DI); ADX and (-DI) are above (+DI); and ADX has started rising from below both (+DI) and (-DI). All these points to possible bearishness.
[hana-code-insert name=’adsense-article’ /]#3 Price below MAs: The price is currently below both 50-day as well as 200-day SMA in the daily chart, indicating bearishness.
#4 MACD below signal line: The MACD line (blue color) is currently below the MACD signal line (orange color).
This typically indicates possible bearishness.
#5 Bearish Aroon: The value of Aroon Up (orange line) is below 30 while Aroon Down (blue line) is above 70.
This indicates possible bearishness.
#6 Broken Uptrend: The weekly chart shows that the stock has broken down from its uptrend. The uptrend line is marked in pink color in the weekly chart below. A breakdown from an uptrend line usually indicates a bearish bias.
#7 Bearish Stoch: The %K line (blue color) of the stochastic is currently below the %D line (orange color) in the weekly chart, indicating possible bearishness.
#8 Bearish RSI: The value of RSI is currently below 50 and moving down. This indicates possible bearishness.
#9 Price below MAs: The price is also below the 50-week as well as the 200-week SMA of the weekly chart. This is a possible bearish sign, as it shows that the bears are currently in control.
Recommended Trade (based on the charts)
Sell Levels: If you want to get in on this trade, the ideal sell level is if the stock breaks down from the Head and Shoulders Pattern at around $56.
TP: Our target prices are $50 and $45 in the next 3-6 months.
SL: To limit risk, place a stop loss at $58.80. Note that this stop loss is on a closing basis.
Our target potential downside is 11% to 20% in the next 3-6 months. For a risk of $2.80, our target rewards are $6.00 and $11.00. This is a nearly 1:2 and 1:4 risk-reward trade.
In other words, this trade offers nearly 2x to 4x rewards compared to the risks.
Note: For those with a higher risk appetite, you can sell half the intended quantity of stocks at the current price of $61.98 with a stop-loss level of $65.50.
Risks to Consider
The stock may reverse its overall trend if it breaks upwards from the H&S 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.
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