The Fortune 500 integrated energy company engaged primarily in electric power production and retail distribution operations in the Deep South of the United States, 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: 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 in the daily chart. Once the stock breaks down from this pattern, it has the potential to move lower in the near-term.
Daily Chart – ETR
#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 CCI and Price: The daily chart shows that there is a bearish divergence between CCI and price.
This is marked as blue dotted lines.
While the price was making higher highs, CCI was forming lower highs. CCI is also moving down from overbought levels.
All these are possible bearish signs.
#4 Bearish Stochastic: The stochastic in the daily chart shows that the %K line has crossed below the %D line.
This is also a possible bearish sign.
#5 Sell Signal in Bollinger Bands: Currently, the stock has formed a sell signal in Bollinger bands in the weekly chart. A sell signal is triggered when a candle is formed above the upper band which is then followed immediately by a candle that is below the upper band. This is a possible bearish sign.
Weekly Chart – ETR
#6 Bearish Engulfing pattern: The weekly chart shows a Bearish Engulfing candlestick pattern being formed. This is marked as a blue ellipse. A bearish engulfing candlestick pattern comprises of two candles and appears during an uptrend. The first candle would be a small green candle while the second candle would be a big red candle. The second day’s candle would completely engulf the body of the first day’s candle. The formation of this pattern indicates possible bearishness.
#7 CCI, RSI moving down: The weekly chart shows that the CCI, as well as RSI, is moving down after reaching near overbought levels. This indicates the stock may move lower.
Recommended Trade (based on the charts)
Sell Levels: If you want to get in on this trade, you can sell the shares of ETR if it closes below the support level of $100.
TP: Our target prices are $95 and $90 in the next 3-6 months.
SL: To limit risk, place a stop loss at $102.50. Note that this stop loss is on a closing basis.
Our target potential downside is 5% to 10% in the next 3-6 months. For a risk of $2.50, our target rewards are $4.00 and $10.00. 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.
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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