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US Technical Analysis Report

Russell 3000 Consolidating at Higher Levels, 2 Stocks with an Upside Potential– ADS, REVG

Sep 17, 2021

US Markets Round-Up

This week, the Russell 3000 index, an important benchmark of the US stock market across market capitalizations, started on a marginally positive note and traded sideways for the entire week. The index settled at 2653.98 with a week till date (WTD) gain of ~0.35 percent on September 16, 2021. Other major indices such as S&P 500 and NASDAQ Composite also showed marginal positive movement for the week. On September 16, 2021, the S&P 500 index settled at 4473.75 with a WTD gain of ~0.34 percent, while NASDAQ Composite Index settled at 15181.92 with a WTD gain of ~0.44 percent.

The market sentiments were supported by positive economic data released during the week such as CPI, retail sales, and core retail sales. As per the Bureau of Labor Statistics, the CPI in August increased 0.3 percent compared to 0.5 percent in July. The retail sales volumes were increased by 0.7 from the previous month and supported the indices. However, an increase in the US weekly unemployment claims to 332,000 from 312,000 (revised level) in the prior week, limited upside gains.

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 two NYSE/ NASDAQ listed stock picks from the technical standpoint. Noted below are our recommendations based on generic insights, entry price, target prices, and stop-loss for Alliance Data Systems Corporation (NYSE: ADS) and REV Group Inc (NYSE: REVG) for the next 2-4 weeks duration:

Alliance Data Systems Corporation 

Alliance Data Systems Corporation (NYSE: ADS) is an IT services company engaged in data-driven marketing, loyalty and payment solutions for industries. Noted below are the key price indicators for the stock:

Price Action Analysis (on the Weekly Chart) 

ADS has recently broken a downward sloping trend line on the upside, indicating the possibility of an upside direction hereon. The trend line breakout is supported by a rise in the volumes, hereby higher market participation, further supporting a positive stance.  Now the next major resistance level for the stock appears at USD 116.70 and prices may test this level in the short-term (2-4 weeks). A further breakout above USD 116.70 backed by volumes may extend buying into the stock.

Technical Indicators Analysis (On the Weekly Chart)

On the weekly chart, RSI (14-period) is trading at ~50.56 levels, indicating a positive trend for the stock. The weekly volumes also seem supportive of an upside movement. The CMP is above the 50-period SMA, further supporting an up move; however, the 21-period SMA is acting as the resistance level for the stock.

Financial Summary

Summary of the Key Financial Metrics for the past four years for Alliance Data Systems Corporation is as follows:

General Recommendation

As per the above-mentioned price action and technical indicators analysis, we can conclude that Alliance Data Systems Corporation is 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:

REV Group Inc

REV Group Inc (NYSE: REVG) is a manufacturer, designer, and distributor of specialty vehicles. The company also deals in the related aftermarket parts and services for those specialty vehicles. Noted below are the key price Indicators for the stock:

Price Action Analysis (on the Weekly Chart)

REVG's prices are forming higher highs and higher lows formation on the chart, indicating an upward trend for the stock. Price has recently broken a major resistance level of USD 16.82 on the upside, backed by good volumes, further supporting a positive stance. Now the next resistance level for the stock appears at USD 21.00 and prices may test this level in the coming sessions. 

Technical Indicators Analysis (On the Weekly Chart)

On the weekly chart, RSI (14-period) is trading at ~56.66 levels, indicating a positive trend for the stock. The weekly volumes also seem supportive of an upside movement. The CMP is above the 50-period SMA and 21-period SMA, further supporting the up move.

Financial Summary 

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

General Recommendation

As per the above-mentioned price action and technical indicators analysis, we can conclude that REV Group Inc is looking technically well-placed on the chart, and we have a ‘Speculative Buy’ rating on the stock. Investment decision should be made depending on an investors’ appetite for 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 recommendations provided in this report are 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 on either side in the ‘Entry Price’ can be considered depending upon the potential expected or indicated.

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 Sep 16, 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.


Disclaimer-

Kalkine Equities LLC provides general information about companies and their securities. The information contained in the reports, including any recommendations regarding the value of or transactions in any securities, does not take into account any of your investment objectives, financial situation or needs. Kalkine Equities LLC is not registered as an investment adviser in the U.S. with either the federal or state government. Before you make a decision about whether to invest in any securities, you should take into account your own objectives, financial situation and needs and seek independent financial advice. All information in our reports represents our views as at the date of publication and may change without notice.

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