The American technology company that designs and builds consumer robots, iRobot Corporation (NASDAQ: IRBT) 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 Breakdown: The daily chart shows that IRBT has recently broken down from a rising wedge pattern that was formed 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 a rising wedge pattern, it typically moves lower in the near-term.
Daily Chart – IRBT
#2 MACD below signal line: The MACD line (blue color) is currently below the MACD signal line (orange color), indicating bearishness.
#3 %K below %D in Stochastic: The %K line (blue color) is currently below the %D (orange color) line in stochastic of the daily chart. This indicates possible bearishness.
#4 Bearish Aroon: The Aroon indicator shows bearishness as the Aroon up is below 30 and the Aroon down is above 70 in the daily chart.
#5 Fibonacci Resistance: Usually, after a down-move, stocks retrace to any of the key Fibonacci levels before resuming its downward trend. The stock had moved down after facing resistance at the 50% Fibonacci level as seen in the weekly chart. This seems like a good area for the stock to decline further.
Weekly Chart – IRBT
#6 Bearish Stochastic: The stochastic in the weekly chart is moving down after reaching overbought levels. The %K line is also below the %D line. All these indicate possible bearishness.
#7 Bearish RSI: The RSI is currently moving lower from overbought levels. This indicates possible bearishness.
#8 Resistance level: There is a strong resistance level closeby for the stock. This is marked as a pink color dotted line. The stock had bounced lower multiple times on reaching this level. This is a possible bearish indication.
#9 Bearish CCI: The weekly chart shows that CCI is currently moving down after reaching overbought levels, 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 IRBT below the short-term moving average of 50-day SMA. This translates to a price of around $78.20.
TP: Our target prices are $70 and $60 in the next 3-6 months.
SL: To limit risk, place a stop loss at $83.30. Note that this stop loss is on a closing basis.
Our target potential downside is 11% to 23% in the next 3-6 months.
For a risk of $5.10, our target rewards are $8.20 and $18.20. 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 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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