The American firearm manufacturing company based in Southport, Connecticut, Sturm Ruger & Company Inc. (NYSE: RGR) seems to be ready for a price correction in the near term according to its latest charts.
Bearish Indications
#1 Rising Wedge Pattern: The daily chart shows that the stock has been forming a rising wedge pattern during the past several months. This is a bearish pattern and is marked in purple color lines in the daily chart. The stock is currently moving down after reaching the top rail of the rising wedge pattern. This indicates that the stock may move lower in the near-term.
Daily Chart – RGR
#2 RSI moving down: The daily chart shows that the RSI is moving down after reaching near overbought levels. This indicates the stock may move lower.
#3 Bearish Candles: The daily chart shows that day before yesterday’s candle was a bearish candle with an upper shadow, called the shooting star.
This candle usually indicates that there was a selling pressure at higher prices.
The stock had closed down from the day’s high and was not able to cross above this level since then.
After the formation of the shooting star, yesterday, the stock had formed a long red candle, which is a confirmation candle for overall bearishness for the stock.
All these are possible bearish signs.
#4 %K below %D: In the daily chart, the %K line of the stochastic has currently crossed below the %D line. The stochastic is also currently moving down from near overbought levels. All this indicates bearishness.
#5 Resistance level and supply area: The weekly chart shows that the stock is currently near a resistance level, which is also acting as a supply area. This area is marked as a red color dotted line. The stock was not able to cross above this level even after multiple attempts. This indicates possible bearishness.
Weekly Chart – RGR
#6 Bearish Stoch: In the weekly chart as well, the %K line of the stochastic is currently below the %D line. The stochastic is also currently moving down from near overbought levels, indicating overall bearishness.
Recommended Trade (based on the charts)
Sell Levels: If you want to get in on this trade, the ideal sell level for RGR is below yesterday’s close. This translates to a price of around $65.50.
TP: Our target prices are $60 and if it closes below it, $55 in the next 4-6 months.
SL: To limit risk, place a stop loss at $69.30. Note that this stop loss is on a closing basis.
Our target potential downside is 8% to 16% in the next 3-6 months.
For a risk of $3.80, our target rewards are $5.50 and $10.50. 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