The well-known chain of pizza restaurants and convenience stores in the Midwestern United States, Casey’s General Stores Inc. (NASDAQ: CASY) seems to be ready for a price correction in the near term according to its latest charts.
Bearish Move – Chart Indications
#1 Rising Wedge Pattern Breakdown: The daily chart shows that the stock was forming a rising wedge 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 rising wedge pattern. This indicates that the price may move lower in the near-term.
Daily Chart – CASY
#2 Price below 50-SMA: The stock is currently trading below the 50-day SMA, which indicates that the bears are currently wrestling for control.
[hana-code-insert name=’adsense-article’ /]#3 Bearish Aroon: The Aroon indicator shows bearishness as the Aroon up is below 30 and the Aroon down is above 70.
#4 MACD below signal line: The MACD line (blue color) is currently below the MACD signal line (orange color), indicating bearishness.
#5 Bearish ADX and DI: The ADX and DI indicate bearishness.
This is because (+DI) < (-DI) and ADX has started rising from below both (+DI) and (-DI).
All these points to possible bearishness.
#6 Double Top Pattern: The stock had recently formed a double top pattern. It is a bearish pattern and is marked in pink color in the weekly chart. Once the stock breaks down from this pattern, it could move lower.
Weekly Chart – CASY
#7 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 possible bearishness.
#8 %K below %D: The stochastic in the weekly chart shows that the %K line is below the %D line. This indicates possible bearishness.
Recommended Trade (based on the charts)
Sell Levels: If you want to get in on this trade, the ideal sell level for CASY is in the following two scenarios:
- If the stock moves up to the breakdown level of the rising wedge pattern, at around $135.
- If the stock closes below the support level of around $119.90.
TP: Our target prices are $120 and $110 (for entry near $135) and $110 and $100 (for entry near $119.90) in the next 3-6 months.
SL: To limit risk, place a stop loss at $139 (for entry near $135) and $124.60 (for entry near $119.90).Note that this stop loss is on a closing basis.
Our target potential downside is 8% to 19% in the next 3-6 months.
- Sell at $135.00: For a risk of $4, our target rewards are $15 and $25. This is a nearly 1:4 and 1:6 risk-reward trade.
- Sell at $119.90: For a risk of $4.70, our target rewards are $9.90 and $19.90. This is a nearly 1:2 and 1:4 risk-reward trade.
In other words, this trade offers nearly 2x to 6x 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.
Happy Trading!
Tara
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