One of the largest investor-owned energy companies in the United States, Consolidated Edison, Inc. (NYSE: ED) seems to be poised for a decline in its price in the near term as per its latest charts.
Bearish Indications
#1 Rising Wedge Pattern Breakdown: The daily chart shows that ED has recently broken down from a rising wedge pattern that was formed during the past few months. This is a bearish pattern and is marked in purple color in the daily chart. Once a stock breaks down from the bottom of the rising wedge pattern, it typically moves lower in the near-term.
Daily Chart – ED
#2 MACD below signal line: The MACD line (blue color) is currently below the MACD signal line (orange color), indicating bearishness.
[hana-code-insert name=’adsense-article’ /]#3 %K below %D in Stochastic: The %K line is currently below the %D line in stochastic of the daily chart.
This indicates possible bearishness.
#4 Bearish ADX and DI: The ADX and DI indicate bearishness.
This is because (+DI) < (-DI); ADX and (-DI) are above (+DI); and ADX has started rising from below both (+DI) and (-DI).
All these points to possible bearishness.
#5 Double Top Pattern: The stock had recently formed a double top pattern as seen in the weekly chart.
It is a bearish pattern and is marked in orange color in the chart. Currently, the stock has broken down from this pattern. This is a possible bearish sign.
Weekly Chart – ED
#6 Bearish Stochastic: The stochastic in the weekly chart is near overbought levels and moving down. The %K line has also crossed below the %D line. All these indicate possible bearishness.
#7 Bearish RSI: The RSI is moving down after reaching overbought levels, indicating possible bearishness.
Recommended Trade (based on the charts)
Sell Levels: If you want to get in on this trade, you can take short positions on half the intended quantity of stocks at the current price of $87.59. The rest of the stock can be purchased if the stock closes below the support level of $84.
TP: Our target prices are $80 and $75 in the next 3-6 months.
SL: To limit risk, place a stop loss at $92 (for entry near $87.59) and $86 (for entry near $84). Note that this stop loss is on a closing basis.
Our target potential downside is 5% to 14% in the next 3-6 months.
- Entry at $87.59: For a risk of $4.41, our target rewards are $7.59 and $12.59. This is a nearly 1:2 and 1:3 risk-reward trade.
- Entry at $84: For a risk of $2.00, our target rewards are $4.00 and $9.00. 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.
Happy Trading!
Tara
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