The Jacksonville, Florida-based transportation services company specializing in logistics, Landstar System, Inc. (NASDAQ: LSTR) seem to be ready for a price correction according to its latest charts.
#1 Rising Wedge Pattern: The daily chart shows that the stock has been forming a rising wedge pattern during the past few months. This is a bearish pattern and is marked in pink color lines in the daily chart. Once the stock breaks down from the rising edge pattern, it has the potential to move lower in the near-term.
#2 Shooting Star: The stock has currently formed a shooting star pattern in the daily chart. This is marked as a blue ellipse. This is a bearish reversal candlestick pattern and indicates that there is a selling pressure at higher prices.
This channel is marked in purple color lines.
Currently, the stock has crossed above this channel and formed a shooting star candlestick pattern.
If the stock corrects back to reach below the top of the channel, it would be a good sell level for the stock.
#4 Resistance Level: There is a resistance level nearby for the stock, which is marked as an orange dotted line.
At this resistance level, multiple tops have been formed. This indicates that the stock looks to be losing steam when attempting to cross above that level, as there seems to be an influx of sellers. This is a possible bearish sign.
#5 Bearish Stochastic: In the weekly chart, the stochastic is currently moving down from overbought levels. The %K line has also crossed below the %D line. All these indicate possible bearishness.
#6 Downtrend Channel Resistance: The weekly chart shows that the stock has been moving down whenever it hits the upper rail of the downtrend channel. There is also a strong resistance level nearby for the stock, marked as an orange dotted line. All these indicate possible bearishness.
Recommended Trade (based on the charts)
Sell Levels: If you want to get in on this trade, the ideal sell level for LSTR is below the low of the shooting star candlestick. This translates to a price below $110.
TP: Our first target price is $105 and if the stock closes below this price, the second target price is $95 in the next 3-6 months.
SL: To limit risk, place a stop loss at $113. Note that this stop loss is on a closing basis.
Our target potential downside is 5% to 14% in the next 3-6 months. For a risk of $3.00, our target rewards are $5.00 and $15.00. This is a nearly 1:2 and 1:5 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 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.