The American public company based in Canonsburg, Pennsylvania that develops and markets engineering simulation software, ANSYS, Inc. (NASDAQ: ANSS) seem to be ready for a price correction according to its latest charts.
Bearish 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 lines in the daily chart. Once the stock reaches the lower rail and breaks down from the rising wedge pattern, it has the potential to move lower in the near-term.
Daily Chart – ANSS
#2 Bearish Cross Of Chaikin Oscillator: From the daily chart we can see that the Chaikin Oscillator value had crossed below zero. This is called a bearish cross. Prices usually start to fall whenever the crossover happens from above the zero line to below the zero line. This is a possible bearish sign.
[hana-code-insert name=’adsense-article’ /]#3 Long Wicked Candle: The daily chart shows that the stock had formed a candle with a long upper wick.
This is marked as an orange ellipse.
The stock was not able to cross above this candle’s high on the later days. This is usually a possible bearish sign.
#4 Bearish RSI: The RSI is currently near overbought levels in the daily chart.
This usually points to the start of a possible downtrend.
#5 Bearish Divergence between Stoch and Price: The weekly chart shows that there is a bearish divergence between Stochastic and price.
This is because while the price was making higher highs, Stoch was forming lower highs. This usually indicates the possibility of an upcoming bearish move. This bearish divergence is marked as blue dotted lines.
Weekly Chart – ANSS
#6 Bearish RSI: The RSI is currently near overbought levels in the weekly chart as well. This usually points to the start of a possible downtrend.
#7 Above Upper Bollinger Band: The stock had recently moved above the upper Bollinger band in the weekly chart. At the same time, RSI is near 70. This is usually a typical bearish setup based on RSI-Bollinger band.
Recommended Trade (based on the charts)
Sell Levels: If you want to get in on this trade, you can sell the shares of ANSS at the current price of $209.33.
TP: Our first target price is $200 and if the stock closes below this price, the second target price is $190 in the next 3-6 months.
SL: To limit risk, place a stop loss at $213.60. Note that this stop loss is on a closing basis.
Our target potential downside is nearly 5% to 9% in the next 3-6 months.
For a risk of $4.27, our target rewards are $9.33 and $19.33. 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.
Happy Trading!
Tara
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