The company that provides personal lines insurance agency services in the United States, Goosehead Insurance Inc. (NASDAQ: GSHD) seems to be poised for a decline in its price in the near term as per its latest charts.
Bearish Indications
#1 Channel Breakdown: The daily chart shows that GSHD has recently broken down from an uptrend channel that was formed during the past few months. This is a bearish sign. The channel is marked in purple color lines in the daily chart. Once a stock breaks down from a channel, it typically moves lower in the near-term.
Daily Chart – GSHD
#2 MACD below signal line: The MACD line (blue color) is currently below the MACD signal line (orange color) in the daily chart, indicating possible bearishness.
#3 Price below MA: The price is currently below the short-term moving average of 50-day SMA, indicating that the bears are slowly gaining control.
#4 Bearish Stochastic: The stochastic in the daily chart shows that the %K line is currently below the %D line. This is a possible bearish indication.
#5 Bearish ADX and DI: The ADX and DI indicate bearishness as per the daily chart.
This is because (-DI) is above both the ADX line as well as the (+DI) line; and ADX has started to rise from below both (+DI) and (-DI).
#6 Supply area: The weekly chart shows that the stock is currently near a supply area, as it was not able to cross above the resistance level even after multiple attempts. This area is marked as a purple color ellipse. This indicates possible bearishness.
Weekly Chart – GSHD
#7 Bearish candles: The weekly chart shows that the stock had formed a doji candle and a bearish red candle during the past two weeks. These are all possible bearish signs.
#8 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.
#9 Bearish RSI: The weekly chart shows that the RSI is moving down from overbought levels and has been forming lower lows and lower highs. This indicates an overall bearishness.
#10 Bearish MACD: In the weekly chart as well, the MACD line is below the MACD signal line, indicating overall bearishness.
Recommended Trade (based on the charts)
Sell Levels: If you want to get in on this trade, you can take short positions on GSHD if it trades below the price of around $79.40.
TP: Our target prices are $70 and $62 in the next 3-6 months.
SL: To limit risk, place a stop loss at $85.00. Note that this stop loss is on a closing basis.
Our target potential downside is 12% to 22% in the next 3-6 months.
For a risk of $5.60, our target rewards are $9.40 and $17.40. 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 channel 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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