The American education technology company based in Santa Clara, California, that specializes in online textbook rentals, homework help, online tutoring, scholarships, and internship matching, Chegg Inc. (NYSE: CHGG) seems to be getting ready for a price bump in the short-term as per the latest charts.
Bullish Move – Chart Indications
#1 Falling Wedge Pattern Breakout: As you can see from the daily chart of CHGG, the stock had formed a falling wedge pattern during the past few months. It has typically taken support at the bottom of the wedge before bouncing back. A falling wedge is a bullish pattern and the stock has currently broken out of it, indicating possible bullishness.
Daily Chart – CHGG
#2 Strong RSI: The reading of RSI is currently above 50, indicating possible bullishness.
[hana-code-insert name=’adsense-article’ /]#3 Double Bottom Pattern: Within the falling wedge pattern, the stock has formed a double bottom pattern.This is marked in the daily chart in orange color.
A double bottom pattern is a bullish reversal pattern and a breakout from it indicates that the stock could possibly move upwards.
Currently, the stock has broken out of the double bottom pattern, indicating bullishness.
#4 MACD above Signal Line: In the daily chart, the MACD (light blue color) has currently crossed above the MACD signal line (orange color).
This indicates a possible bullish setup.
#5 Price above MAs: The stock is currently trading above both 50-day and 200-day SMA, indicating that the bulls are currently in control.
#6 Bullish Aroon: The value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30 in the daily chart. This indicates bullishness.
#7 Flag Pattern: The weekly chart also shows that the stock had formed a flag pattern (marked in purple color). A flag is a bullish pattern and a breakout from this pattern typically causes the stock to move higher. Currently, the stock has broken out of the flag pattern, indicating bullishness.
Weekly Chart – CHGG
#8 Bullish Stoch: The %K line is above the %D line of the stochastic, indicating possible bullishness.
#9 Bullish RSI: In the weekly chart as well, the reading of RSI is currently above 50, indicating possible bullishness.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, purchase shares of CHGG when it closes above the resistance level of $29.70.
TP: Our target prices are $38 and $45 in the next 3 to 6 months.
SL: To limit risk, place a stop loss at $26.70. Note that the stop loss is on a closing basis.
Our target potential upside is 28% to 52% in the next 3-6 months. For a risk of $3.00, our first target reward is $8.30 and second target reward is $15.30. This is a 1:3 and 1:5 risk-reward trade. In other words, this trade offers 3x to 5x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down from the falling wedge pattern with high volume. The sell-off of the stock could also be triggered in case of any negative news, overall weakness in the market, or any regulatory changes in the sector.
Happy Trading!
Tara
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