The specialty insurance company that focuses on the excess and surplus lines (E&S) market in the United States, Kinsale Capital Group Inc. (NASDAQ: KNSL) 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: The daily chart shows that KNSL has recently formed a rising wedge pattern during the past few months. This is a bearish pattern and is marked in purple color in the daily chart. Currently, the stock is near the lower rail of the rising wedge pattern. Once a stock breaks down from the bottom of the rising wedge pattern, it typically moves lower in the near-term.
Daily Chart – KNSL
#2 Double Top Pattern: The stock had recently formed a double top pattern. It is a bearish pattern and is marked in pink color in the chart. Once the stock breaks down from this pattern, it may move lower.
[hana-code-insert name=’adsense-article’ /]#3 Overbought CCI moving down: CCI is currently moving down after reaching overbought levels, indicating possible bearishness.
#4 RSI moving down: The daily chart shows that the RSI has moved down from overbought levels and is currently moving lower.
This is a possible bearish sign.
#5 Supply area: The weekly chart shows that the stock is currently near a supply area, which is marked as a pink rectangle.
The stock was not able to cross above this level even after multiple attempts. This indicates possible bearishness.
Weekly Chart – KNSL
#6 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 blue dotted lines.
#7 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.
#8 %K below %D in Stochastic: The %K line is currently below the %D line in stochastic of the weekly chart. It is also moving down from overbought levels. This is a possible bearish indication.
Recommended Trade (based on the charts)
Sell Levels: If you want to get in on this trade, you can take short positions on KNSL below the price of around $104.30.
TP: Our target prices are $98 and $90 in the next 3-6 months.
SL: To limit risk, place a stop loss at $106.90. Note that this stop loss is on a closing basis.
Our target potential downside is 6% to 14% in the next 3-6 months.
For a risk of $2.60, our target rewards are $6.30 and $14.30. This is a nearly 1:2 and 1:6 risk-reward trade.
In other words, this trade offers nearly 2x to 6x 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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