The bank holding company specializing in credit cards, auto loans, banking and savings accounts headquartered in McLean, Virginia, Capital One Financial Corp. (NYSE: COF) 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 COF 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 orange color in the daily chart. Once a stock breaks down from a rising wedge pattern, it typically moves lower in the near-term.
Daily Chart – COF
#2 Price below MAs: The stock price is currently below both 50-day as well as 200-day SMA. This is a possible bearish sign.
#3 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’ /]#4 %K below %D in Stochastic: The %K line is currently below the %D line in stochastic of the daily chart.
This indicates possible bearishness.
#5 Bearish Aroon: The Aroon indicator shows bearishness as the Aroon up is below 30 and the Aroon down is above 70.
#6 Support-turned-resistance level: There is a strong support-turned resistance level closeby for the stock.
This is marked as a pink dotted line. This is a possible bearish indication.
#7 Uptrend Broken: The weekly chart shows that the stock has currently broken down from a short term uptrend. This uptrend line is shown in blue color. The breakdown from an uptrend is a possible bearish sign. The stock was also unable to cross above the previous high (marked as blue dotted line), indicating overall weakness.
Weekly Chart – COF
#8 Bearish Stochastic: The stochastic in the weekly chart is moving down after reaching overbought levels. The %K line is also below the %D line. All these indicate possible bearishness.
#9 MACD below signal line: The MACD line (blue color) is currently below the MACD signal line (orange color) in the weekly chart, indicating bearishness.
#10 Price below MAs: The stock is currently below the 50-week and 200-week SMA, indicating the overall weakness in the charts.
Recommended Trade (based on the charts)
Sell Levels: If you want to get in on this trade, you can take short positions on COF at the current price of $83.45.
TP: Our target prices are $75 and $70 in the next 3-6 months.
SL: To limit risk, place a stop loss at $88.40. Note that this stop loss is on a closing basis.
Our target potential downside is 10% to 16% in the next 3-6 months.
For a risk of $4.95, our target rewards are $8.45 and $13.45. This is a nearly 1:2 and 1:3 risk-reward trade.
In other words, this trade offers nearly 2x to 3x 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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