The company that produces 10G-600G high-speed analog and mixed-signal semiconductor components and optical subsystems to networking original equipment manufacturers, optical module, cloud and telecom service providers, Inphi Corporation (NYSE: IPHI) 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 the stock was recently formed a rising wedge pattern during the past few months. This is a bearish pattern and is marked in pink color 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.
Daily Chart – IPHI
#2 %K below %D in Stochastic: In the daily chart, the %K line has currently crossed below the %D line in stochastic. The stoch is also moving down from overbought levels. All these indicate possible bearishness.
#3 Supply area: The daily chart shows that the stock is currently near a supply area, which is marked as an orange color ellipse.
The stock was not able to cross above this level even after multiple attempts.
This indicates possible bearishness.
#4 Overbought RSI: The RSI is currently near overbought levels in the daily chart.
This indicates the possibility of downmove in the near-term.
#5 Bearish Divergence between RSI and Price: The weekly chart shows that there is a bearish divergence between RSI and price.
This is because while the price was making higher highs, the RSI was forming lower highs. This usually indicates the possibility of an upcoming bearish move. The bearish divergence is marked as pink color dotted lines in the chart.
Weekly Chart – IPHI
#6 Bearish CCI: The CCI is currently moving lower after reaching overbought levels in the weekly chart. This indicates possible bearishness.
#7 Bearish RSI: The RSI is currently forming lower lows in the weekly chart after reaching overbought levels, pointing to an overall weakness in the stock.
Recommended Trade (based on the charts)
Sell Levels: If you want to get in on this trade, you can take short positions on IPHI if the stock opens below yesterday’s close. This translates to a price of around $96.70.
TP: Our target price is $90 and if it closes below that, the next target price is $85 in the next 3-6 months.
SL: To limit risk, place a stop loss at $100.10. Note that this stop loss is on a closing basis.
Our target potential downside is 7% to 12% in the next 3-6 months.
For a risk of $3.40, our target rewards are $6.70 and $11.70. 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
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