The company that engages in the development and commercialization of minimally invasive solutions for patients with obstructive sleep apnea, Inspire Medical Systems Inc. (NYSE: INSP) 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 INSP has been recently forming a rising wedge pattern during the past few months. This is a bearish pattern and is marked in pink color lines in the daily chart. Once a stock breaks down from the bottom of the rising wedge pattern, it typically moves lower in the near-term. Currently, the stock looks ready for a breakdown from the rising wedge pattern.
Daily Chart – INSP
#2 MACD below signal line: The MACD line (blue color) has currently crossed below the MACD signal line (orange color), indicating an overall bearishness.
#3 Bearish RSI: In the daily chart, the Relative Strength Index is currently moving down from overbought levels. This is a possible bearish sign.
#4 Supply area: The weekly chart shows that the stock is currently near a supply area, which is marked as a purple color rectangle. The stock was not able to cross above this level in the past few weeks despite attempting many times. This indicates possible bearishness.
Weekly Chart – INSP
#5 Overbought Stochastic: The stochastic in the weekly chart is near overbought levels and starting to move down. This indicates possible bearishness.
#6 CCI Moving Down: The weekly chart shows that the CCI has started to move down after reaching above 150.
There is also a slight bearish divergence between the CCI and price in the weekly chart, which is marked as blue color dotted lines.
While the price was making a higher high, the CCI was forming a lower high. All these usually indicate that the stock may reverse to the downside soon.
#7 Bearish RSI: The RSI is moving down after reaching overbought levels in the weekly chart as well, indicating 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 INSP once it breaks down from the rising wedge pattern. This translates to a price of around $123.00.
The entry level has been marked as an orange color dotted line.
TP: Our target prices are $115 and $100 in the next 3-6 months.
SL: To limit risk, place a stop loss at $128.00. Note that this stop loss is on a closing basis.
Our target potential downside is 7% to 19% in the next 3-6 months.
For a risk of $5.00, our target rewards are $8.00 and $23.00. 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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