The insurance holding company that focuses on the residential and commercial earthquake markets, Palomar Holdings Inc. (NASDAQ: PLMR) 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 PLMR 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 – PLMR
#2 MACD below signal line: The MACD line (blue color) has currently crossed below the MACD signal line (orange color) in the daily chart, indicating bearishness.
#3 Price below MA: The price is currently below the short-term moving average of 50-day SMA, indicating an overall bearishness.
#4 Bearish Stochastic: The stochastic in the daily chart is currently moving down. The %K line is also currently below the %D line.
All these indicate possible bearishness.
#5 Bearish ADX and DI: In the daily chart, the ADX line has started to move higher from -DI and +DI lines. The -DI line is also currently above the +DI line, indicating an overall bearishness.
#6 Below Support Area: The weekly chart shows that the stock is currently trading below a support area, which is marked as a pink color dotted line. This indicates possible bearishness.
Weekly Chart – PLMR
#7 Bearish Stochastic: The stochastic in the weekly chart is currently moving down from overbought levels. The %K line has also crossed below the %D line. All these indicate possible bearishness.
#8 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.
#9 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 PLMR if it trades below the price of around $84.50.
TP: Our target prices are $80.00 and if it closes below that level, $72.00 in the next 3-6 months.
SL: To limit risk, place a stop loss at $87.50. Note that this stop loss is on a closing basis.
Our target potential downside is 5% to 15% in the next 3-6 months.
For a risk of $3.00, our target rewards are $4.50 and $12.50. This is a nearly 1:2 and 1:4 risk-reward trade.
In other words, this trade offers nearly 2x to 4x 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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