US Markets Round-Up

This week, the Russell 3000 index, an important benchmark of the US stock market across market capitalizations, started on a slightly positive note and witnessed a rangebound movement for the entire week. The index settled at 2626.82 with a week till date (WTD) gain of ~0.24 percent on July 29, 2021. Other major indices such as S&P 500 and NASDAQ Composite showed mixed movement during the week. On July 29, 2021, the S&P 500 index settled at 4419.15 with a WTD gain of ~0.17 percent, while NASDAQ Composite Index settled at 14778.26 with a WTD loss of ~0.40 percent.

The Federal Open Market Committee kept the benchmark interest rate unchanged, near zero in the latest policy meet and supported the indices. As per the GDP, Q2 2021 (Advance Estimate) data released by the Bureau of Economic Analysis, GDP increased at an annual rate of 6.5 percent compared to 6.3 percent (revised) real GDP in Q1 2021. A decrease in the US weekly unemployment claims to 400,000 from 424,000 (revised level) in the prior week further helped the indices to retain at higher levels. 

Having understood the US market performance over the week, taking cues from major global news, and based on our technical analysis of the Russell 3000 index for the upcoming week, now let us have a look at the one NYSE listed stock pick from the technical standpoint. Noted below is our recommendations based on generic insights, entry price, target prices, and stop-loss for Chegg Inc (NYSE: CHGG) for the next 2-4 weeks duration:

Chegg Inc 

Chegg Inc (NYSE: CHGG) is an operator of direct-to-student learning platform. The platform helps students to prepare for college admission exams, find colleges, internships etc. and also offer eTextbooks and print textbooks. Noted below are the key price indicators for the stock:

Price Action Analysis (on the Weekly Chart) 

CHGG's price broke a falling wedge (bullish continuation) pattern on the upside on June 28, 2021 and has since then been sustaining above the upper band of the pattern, indicating an upward direction for the stock. Prices also formed a bullish engulfing (bullish reversal) pattern on the weekly chart, further supporting a positive stance. Now the next major resistance level for the stock appears at USD 115.50 and prices may test the level in the short-term (2-4 weeks). 

 

Technical Indicators Analysis (On the Weekly Chart)

On the weekly chart, RSI is trading at ~56.55 levels and indicating a positive trend for the stock. The weekly volumes also seem supportive of an upside movement. The CMP is above the 21-period and 50-period SMA, further providing support for an upward direction.

Financial Summary

Summary of the Key Financial Metrics for the past four years for Chegg Inc is as follows:

General Recommendation

As per the above-mentioned price action and technical indicators analysis, we can conclude that Chegg Inc looking technically well-placed on the chart, and we have a ‘Buy’ rating on the stock. Investment decision should be made depending on an investors’ appetite on upside potential, risks, and any previous holdings. This recommendation is purely based on technical analysis, and fundamental analysis has not been considered in this report. The summary of our recommendation is as follows:

Upcoming Major Global Economic Events

Market events occur on a day-to-day basis depending on the frequency of the data and generally include an update on employment, inflation, GDP, consumer sentiments, etc. Noted below are the upcoming week's major global economic events that could impact the Russell 3000 Index and stocks’ prices.

Investment Related Risks: Based on the technical analysis, the risks are defined as per risk-reward ratio (~0.60:1.00), however, returns are generated within 2-4 weeks’ time frame. This may be looked at by Investors with sufficient risk appetite looking for returns within short investment duration. Investment recommendation provided in this report is solely based on technical parameters, and fundamental performance of the stocks has not been considered in the decision-making process. Other factors which could impact the stock prices include market risks, regulatory risks, interest rates risks, currency risks, and social and political instability risks etc.

Entry Price: For the given recommendation(s), Entry Price is assumed be at or above a certain level. However, a slight deviation in the ‘Entry Price’ can be considered depending upon the upside potential expected and taking into consideration the Target 1 and trailing stop-loss levels indicated. For example: - An Investor can consider entering the stock at or above a certain range (3%-5%) from the Entry Levels recommended depending upon the potential upside expected and difference from the Target 1 and Trailing-Stop Loss Levels indicated for the stock.

Note 1: Investors can consider exiting from the stock if the Target Price or Stop loss mentioned as per the technical analysis has been achieved and subject to the factors discussed above. 

Note 2: How to Read the Charts?

The Green colour line reflects the 21-period moving average while the red line indicates the 50- period moving average. SMA helps to identify existing price trend. If the prices are trading above the 21-period and 50-period moving average, then it shows prices are currently trading in a bullish trend.

The Black colour line in the chart’s lower segment reflects the Relative Strength Index (14-Period) which indicates price momentum and signals momentum in trend. A reading of 70 or above suggests overbought status while a reading of 30 or below suggests an oversold status.

The Blue colour bars in the chart’s lower segment show the volume of the stock. The volume is the number of shares that changed hands during a given day. Stocks with high volumes are more liquid than stocks with lesser volume as liquidity in stocks helps in easier and faster execution of the order.

The Orange colour lines are the trend lines drawn by connecting two or more price points and used for trend identification purposes. The trend line also acts as a line of support and resistance.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Risk Reward Ratio: Risk reward ratio is the difference between an entry point to a stop loss and profit level. We suggest ~60% Stop Loss of the Target 1 from the entry point. 

A trailing stop-loss is a modification of stop-loss in case of favourable movement in the price to protect the gains. We suggest Investors to Trail the Stop-Loss as per the aforementioned levels if the stock price achieves more than 60% of the Target 1. Investors should consider exiting from the position as per the Trailing Stop-Loss level if the price starts moving downwards after achieving more than 60% of the Target 1. 

The reference date for all price data, volumes, technical indicators, support, and resistance levels is July 29, 2021. The reference data in this report has been partly sourced from REFINITIV. 

Abbreviations

CMP: Current Market Price

SMA: Simple Moving Average

RSI: Relative Strength Index

USD: United States dollar 

Note: Trading decisions require a thorough analysis by investors. Technical reports in general chart out metrics that may be assessed by investors before any stock evaluation. The above are illustrative analytical factors used for evaluating the stocks; other parameters can be looked at along with additional risks per se. Past performance is neither an indicator nor a guarantee of future performance.