The Mississippi-based real estate investment trust company, Eastgroup Properties Inc. (NYSE: EGP) 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 weeks. This is a bearish pattern and is marked in pink color lines in the daily chart. The stock is currently near the top of the rising wedge pattern. Once the stock breaks down from this pattern, it has the potential to move lower in the near-term.
#2 Bearish Shooting Star Candle: The latest candle is a bearish candle with a long upper shadow, called as the shooting star.
This is a possible bearish sign.
#3 Bearish Divergence between Stoch and Price: The daily chart shows that there is a bearish divergence between the stochastic indicator and price.
This divergence is marked as blue dotted lines.
While the price was making higher highs, stochastic was forming lower highs.
This usually foretells the start of a bearish move.
#4 %K below %D in Stochastic: The %K line (blue color) is currently below the %D line (orange color) in stochastic of the weekly chart. The stochastic indicator is also near overbought levels. All this indicates possible bearishness.
#5 Bearish Divergence between RSI and Price: The weekly chart shows that there is a bearish divergence between RSI and price. This is because while the price was making higher highs, RSI was forming lower highs. This usually indicates the possibility of an upcoming bearish move. This bearish divergence is marked as pink dotted lines.
#6 Overbought RSI moving down: The weekly chart shows that the RSI is currently near overbought levels and starting to move down. This indicates a possible weakness in the current upmove.
Recommended Trade (based on the charts)
Sell Levels: If you want to get in on this trade, you can take short positions on EGP if the stock opens below the opening price of yesterday’s candle. This translates to a price below $126.
TP: Our target prices are $120 and $110.
SL: To limit risk, place a stop loss at $129.50. Note that this stop loss is on a closing basis.
Our target potential downside is 5% to 13% in the next 3-6 months.
For a risk of $3.50, our target rewards are $6.00 and $16.00. 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.