One of the largest industrial equipment distributors in the world, MSC Industrial Direct Co Inc. (NYSE: MSM) 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 MSM 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 – MSM
#2 Price below MA: The stock price is currently below its long-term moving average of 200-day as SMA. This is a possible bearish sign.
#3 MACD below signal line: The MACD line (blue color) is currently below the MACD signal line (orange color), indicating bearishness.
#4 %K below %D in Stochastic: The %K line of the stochastic has currently crossed below the %D line in the daily chart. This indicates possible bearishness.
#5 Bearish ADX and DI: The ADX and DI indicate bearishness as per the daily chart. This is because (+DI) < (-DI); and ADX is starting to rise from below both (+DI) and (-DI).
#6 Bearish Engulfing candlestick pattern: The weekly chart shows that the stock is currently forming a bearish engulfing candlestick pattern. This is marked as a blue color ellipse in the chart. The formation of this pattern indicates possible bearishness.
Weekly Chart – MSM
#7 Trendline resistance: The weekly chart shows that the stock had moved down after reaching its trendline resistance. This is marked as a pink color line in the weekly chart. This is a possible bearish indication.
#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 Price below 200-MA: The stock is currently trading below its 200-week SMA. It is also currently moving down towards the 50-week SMA. All these indicate that the bears are gaining control.
Recommended Trade (based on the charts)
Sell Levels: If you want to get in on this trade, you can take short positions on MSM below the major moving averages. This translates to a price of around $66.
TP: Our target prices are $62 and $56 in the next 3-6 months.
SL: To limit risk, place a stop loss at $68.50. Note that this stop loss is on a closing basis.
Our target potential downside is 6% to 15% in the next 3-6 months.
For a risk of $2.50, our target rewards are $4.00 and $10.00. 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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