Shares of education technology company Chegg ( CHGG) are sharply lower in trading Tuesday in reaction to disappointing earnings numbers Monday night.
We last looked at CHGG on Feb. 10. At that time, we advised that longer term, "we could see CHGG reach the $150 area, but in the short-run a correction or pullback seems the more likely path. I think we will get a better buying opportunity in the weeks ahead."
CHGG weakened from late February but I did not envision the kind of decline we have seen.
Let's review the latest charts.
In this daily bar chart of CHGG, below, we can see that prices have been trending lower for several months before the downside gap. Prices have been trading below the declining 50-day and 200-day moving averages. The On-Balance-Volume (OBV) line just made a new low for the move down and the Moving Average Convergence Divergence (MACD) oscillator is bearish. Hindsight is great.
In this weekly Japanese candlestick chart of CHGG, below, we went back five years to get some perspective. The latest weakness is not plotted yet. Prices made a large top formation going back about 18-months. Prices are trading below the declining 40-week moving average line. The weekly OBV line and the MACD oscillator are both weak. The $30 may see some buying interest.
In this daily Point and Figure chart of CHGG, below, we can see that prices have reached and exceeded a $59 price target. Point and Figure charts do not have gaps.
In this weekly Point and Figure chart of CHGG, below, we used close only prices and a five box reversal filter. Here the software suggests a downside price target of $29.
Bottom line strategy: Continue to avoid the long side of CHGG. Today's gap and downside move is not over, in my opinion. Further losses appear likely and a low has not been made.
