CESOL Price Analysis: Bears struggle to break out

CESOL Price Analysis: Bears struggle to break out

This is a one-day intraweek analysis of CESOL stock. The stock has been in a downtrend but was oversold on Wednesday, so we see some buying opportunities coming up. We like this stock and are bullish. The rebound from the support level at $3.80 was encouraging, and it closed well above the $3.90 resistance level, but there was a reversal in today’s trading session. The next support is at $3.87 and $3.85, which happens to be the 100-day moving average (MA).

The 100-day MA is critical support, and if that level breaks down it would indicate an increased probability of a bearish reversal scenario: in other words, we might get a short term-bearish stock entry signal soon if that level breaks down; this is not confirmed yet as long as there are no clear signs of bearish sentiment coming from Stochastic or MACD oscillators. Deutsche Bank upgraded the stock to “buy” from “hold” on April 27, and the stock gained 1.2% in two days. Deutsche Bank’s stock price target is $4 per share (on February 17, it was $3.50). And Citi Research upgraded the stock to “buy” from “neutral” on April 18, which the market considered positive for CESOL. The stock closed at $3.81 on Friday, but then saw an intra-day drop to as low as $3.80; this indicates that there are still bearish buyers in action here (apart from short covering).

Situation and Analysis

CESOL stock is trading near its critical support. The stock’s price is above the 50-day simple moving average, but not all that far above it. Anything below this level will be in a very narrow range. You can see the relationship of this 200-day average to the moving averages on the chart. If we are correct, then CESOL is likely due for a breakout to a new short-term uptrend or consolidation period (whichever comes first).

We have been buying these dips on any pullback (in either direction) into support, and we bought more than our usual minimum because of the buy signal given by yesterday’s gap down. The next support is at $3.87 and $3.85, which happens to be the 100-day MA. The 100-day MA is critical support, and if that level breaks down we might get an increased probability of a bearish reversal scenario: in other words, it would trigger a short-term bearish stock entry signal on this stock.

Will Bears Takeover?

The relative strength index (RSI) has made lower highs from November to February. The RSI bounced off its 50-day moving average in February and March, but not by enough to give a clear indication of an upward trend. There is a channel on the chart, hence we are looking for either a short-term uptrend or a consolidation period; the former is more likely to happen first. MACD histogram is negative, but the indicators have not given a buy signal yet. As long as they are not in the same bullish alignment (as shown below), we will still wait for a clear bullish signal before entering this stock.

Our Statistics: We hold CESOL because it has strong fundamentals. Its debt-to-assets ratio is 10.29%, its long-term debt/equity ratio is 1.73, and its enterprise value/EBITDA ratio is 11.13x; these are good numbers for this industry sector, which also happens to be a cyclical industry. The stock’s beta is 0.96, so it is not a volatile stock, and the analysts’ consensus recommendation is “hold.”

What Happens Now for CESOL Price Analysis: Bearish Continuation?

The stock’s price is below the 50-day SMA, and this area is also near support. The next support is at $3.87 and $3.85, which happens to be the 100-day MA, a critical level. The bears may try to push through this level and perhaps even break it down; if they do that then we might get an increased probability of a bearish reversal scenario: in other words, it will trigger a short-term bearish stock entry signal on this stock. We are going to look for a pullback into this level before making any new long-term position in CESOL.