The American chain of combined restaurant and gift stores with a Southern country theme, Cracker Barrel Old Country Store, Inc. (NASDAQ: CBRL) seems to be poised for a decline in its price in the near term as per its latest charts.
Bearish Indications
#1 Symmetrical Triangle Pattern Breakdown: The daily chart shows that the stock has been forming a symmetrical triangle pattern during the past few months. This is marked in purple color in the daily chart. The stock has currently broken down from the symmetrical triangle pattern. This usually indicates that the stock could move lower in the near-term.
Daily Chart – CBRL
#2 Price below MAs: The stock price is currently below both 50-day as well as 200-day SMA. This is a bearish sign.
[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 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.
#5 Bearish Aroon: The Aroon indicator shows bearishness as the Aroon up is below 30 and the Aroon down is near 70.
#6 Consolidation area: The weekly chart shows that the stock has been trading within a consolidation area during the past several months. Currently, the stock is moving down from the top rail of this consolidation area. This is a possible bearish sign.
Weekly Chart – CBRL
#7 Price below MAs: The stock price is currently below both 50-week as well as 200-week SMA. This is a bearish sign.
#8 %K below %D: In the weekly chart, the %K line of the stochastic has currently below the %D line, indicating possible bearishness.
#9 Other Bearish Indications: The MACD line (blue color) is currently below the MACD signal line (orange color), indicating bearishness. The Aroon indicator also shows bearishness as the Aroon up is below 30 and the Aroon down is above 70.
Recommended Trade (based on the charts)
Sell Levels: If you want to get in on this trade, you can take short positions on CBRL at the current price of $155.72.
TP: Our target price is the bottom of the consolidation area at around $144. If the stock breaks down from there as well, the next target price is $130 in the next 3-6 months.
SL: To limit risk, place a stop loss at $162. Note that this stop loss is on a closing basis.
Our target potential downside is 8% to 14% in the next 3-6 months. For a risk of $6.28, our target rewards are $11.72 and $25.72. 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.
Risks to Consider
The stock may reverse its overall trend if it breaks upwards from the symmetrical 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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