The developer and marketer of software products for inbound marketing and sales whose products and services aim to provide tools for social media marketing, content management, web analytics, and search engine optimization, HubSpot Inc. (NYSE: HUBS) seems to be ready for a price correction in the near term according to its latest charts.
Bullish Move – Chart Indications
#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 purple color in the daily chart. The stock is currently near the bottom rail of the rising wedge pattern. Once the stock breaks down from this pattern, it has the potential to move lower in the near-term.
Daily Chart – HUBS
#2 RSI moving down: The daily chart shows that the RSI is moving down after reaching near overbought levels. This indicates the stock may move lower.
[hana-code-insert name=’adsense-article’ /]#3 Bearish Divergence between RSI and Price: The daily chart shows that there is a bearish divergence between RSI and price.
This is marked as blue dotted lines.
While the price was making higher highs, RSI was forming lower highs.
This is a possible bearish sign.
#4 Bearish Stochastic: The stochastic in the daily chart shows that the %K line is below the %D line.
This is also a possible bearish sign.
#5 MACD below signal line: The MACD line (blue color) is currently below the MACD signal line (orange color) in the daily chart. This typically indicates possible bearishness.
#6 Weakness in Weekly Chart: The weekly chart shows that there is a weakness in the current uptrend of the stock. The stock was unable to cross above the upper wick of the latest candlesticks (marked in purple dotted line), indicating that there is a selling pressure at higher prices.
Weekly Chart – HUBS
#7 Bearish Harami: In the weekly chart, we can see a bearish Harami candlestick pattern, wherein a large bullish green candle appeared on Day 1 followed by a smaller bearish or bullish candle on Day 2. This pattern is marked as a pink ellipse. This bearish pattern usually appears during an uptrend and signals the reversal of the trend.
Recommended Trade (based on the charts)
Sell Levels: If you want to get in on this trade, you can sell half the intended quantity of stocks of HUBS if it breaks down from the rising wedge pattern as well as the support level of 50-day SMA at around $172. The remaining half of the stock can be sold if it closes below $159.50.
TP: Our target prices are $150 and $140 in the next 3-6 months.
SL: To limit risk, place a stop loss at $180.50 (for entry near $172) and $166 (for entry near $159.50). Note that this stop loss is on a closing basis.
Our target potential downside is 6% to 19% in the next 3-6 months.
- Entry near $172: For a risk of $8.50, our target rewards are $22.00 and $32.00. This is a nearly 1:3 and 1:4 risk-reward trade.
- Entry near $159.50: For a risk of $6.50, our target rewards are $9.50 and $19.50. This is a nearly 1:2 and 1:3 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 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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