The medical device company headquartered in Warsaw, Indiana, Zimmer Biomet Holdings Inc. (NYSE: ZBH) 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 ZBH 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. Once a stock breaks down from the rising wedge pattern, it typically moves lower in the near-term.
Daily Chart – ZBH
#2 Bearish Divergence between Stoch and Price: The daily chart shows that there is a bearish divergence between Stoch and price. This is because while the price was making higher highs, Stoch was forming lower highs.
[hana-code-insert name=’adsense-article’ /]This usually indicates the possibility of an upcoming bearish move.The bearish divergence is marked as blue color dotted lines in the chart.
#3 Doji pattern: The daily chart shows that the stock had formed a doji candlestick pattern yesterday.
This pattern is marked as an orange color ellipse.
This indicates indecisiveness among buyers and sellers.
Once the stock closes below the close of the Doji, it usually indicates the beginning of a downtrend.
#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 MACD below signal line: The MACD line (blue color) is currently below the MACD signal line (orange color), indicating bearishness.
#6 Bearish Divergence between RSI and Price: In the weekly chart, we can see that there is a bearish divergence between RSI and price. While the price made higher highs, RSI formed lower highs. This is also a possible bearish indication.
Weekly Chart – ZBH
#7 Bearish Stoch: The %K line is currently below the %D line in stochastic of the weekly chart as well. This indicates 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 ZBH if it opens below yesterday’s close. This translates to a price below $148.
TP: Our target price in the next 3-6 months is $140, and if it crosses below that price, $130.
SL: To limit risk, place a stop loss at $152.00. Note that this stop loss is on a closing basis.
Our target potential downside is 5% to 12% in the next 3-6 months.
For a risk of $4.00, our target rewards are $8.00 and $18.00. 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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