Shares of Garmin (NASDAQ:GRMN) rose almost 10% on Wednesday following the company’s latest earnings report. Through the lens of technical analysis this latest rally has taken the stock into parabolic overshooting mode. A short-side trade is setting up for active investors and traders.
Trading and investing can be a humbling exercise as no one is bigger than the market. An easy way to be humbled in the markets is by attempting to call tops and bottoms.
One way to call for ‘overbought’ and ‘oversold’ however, is by looking for charts that have taken their slopes from steep to vertical. Simply put, this last leg is the parabolic move that often leads to buyer exhaustion for a period of time, and then leads to consolidation in a sideways manner.
Garmin Stock Charts
On the multi-year weekly chart we see that GRMN stock over the past decade moved higher in a defined pattern marked by the purple lines. When the stock attempted to overshoot this pattern in the spring of 2019, it ultimately led to a mean-reversion move lower to the tune of approximately 16%. The latest rally is now overshooting said pattern even further, and while I don’t see a crash ahead for the stock, the rally does look to be notably overdone and due for a pause.
Although a much smaller time frame, it is interesting to see that on the daily chart a very similar pattern is taking place. GRMN stock had been moving higher this year from the summer months into the present, all within this rising wedge pattern marked by the purple lines.
The sharp parabolic rally from Oct. 30 then blew the stock out of this pattern to the upside. Simply put, I don’t think this rate of change to the upside is sustainable, particularly given that the stock already rallied 18% since August lows.
Thus, active traders and investors could look to short the stock in the $96-$97 area with a next downside target in the low $90s. Any further major one-day rally would be a stop loss signal.
The highest probability trade, however, that sets up well for this position in GRMN stock is to sell an out-of-the-money call spread (options credit spread) in a very specific way. I am hosting a special webinar Thursday, Oct. 31 to go over this setup in detail. Register here.
Special free webinar: How to generate stock market income with options credit spreads like a pro. Register HERE