The American content delivery network and cloud service provider, Akamai Technologies, Inc. (NASDAQ: AKAM) seems to be poised for a decline in its price in the near term as per its latest charts.
Bearish Indications
#1 Head and Shoulders Pattern: There is a head and shoulders pattern formed on the daily chart of AKAM. This is marked in orange color lines. A head and shoulders pattern is a bearish pattern and a breakdown from it usually indicates that the stock may move lower.
Daily Chart – AKAM
#2 Descending Triangle Breakdown: The daily chart shows that the stock has been forming a descending triangle pattern during the past few weeks. This is a bearish pattern and is marked in purple color in the daily chart.
[hana-code-insert name=’adsense-article’ /]The stock has currently broken down from the descending triangle pattern.A breakdown from a bearish pattern like descending triangle pattern usually indicates that the stock could move lower in the near-term.
#3 Price below MAs: The stock price is currently below both 50-day as well as 200-day SMA. This is a bearish sign.
#4 MACD below signal line: The MACD line (blue color) is currently below the MACD signal line (orange color), indicating bearishness.
#5 Bearish Aroon: The Aroon indicator shows that Aroon Up (Orange line) is below 30 and Aroon Down (blue line) is above 70. This is a bearish sign.
#6 %K below %D in Stochastic: The %K line has crossed below the %D line in stochastic of the weekly chart. This indicates possible bearishness.
Weekly Chart – AKAM
#7 MACD below signal line: The MACD line (blue color) is currently below the MACD signal line (orange color) in the weekly chart, indicating bearishness.
#8 Flag Pattern Breakdown: The stock has broken down from the flag pattern, which is marked in purple color lines in the weekly chart. This is a possible bearish sign.
The Aroon indicator shows weakness. The stock is also trading below a long-term support level (marked as a pink dotted line). These are all bearish signs.
Recommended Trade (based on the charts)
Sell Levels: If you want to get in on this trade, you can take short positions on AKAM only below a close of $69. This is because the latest candlestick pattern is an inside bar, which is a bullish pattern.
TP: Our target prices are $60 and $50 in the next 3-6 months.
SL: To limit risk, place a stop loss at $73.50. Note that this stop loss is on a closing basis.
Our target potential downside is 13% to 28% in the next 3-6 months. For a risk of $4.50, our target rewards are $9 and $19. 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 descending triangle 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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