A descending triangle pattern has formed in the chart of Plug Power Inc. (PLUG). This is a bearish pattern and if the support level is broken, a breakdown is expected.
PLUG is an innovator of modern hydrogen and fuel cell technology. It has revolutionized the material handling industry with its full-service GenKey solution, which is designed to increase productivity, lower operating costs and reduce carbon footprints in a reliable and cost-effective way.
PLUG had a strong 2020 due to interest in alternative energy stocks, but has faltered this year from a rotation out of growth stocks. Plus, the company has been asked to restate financial statements for the last four years, which is not a good sign.
The company does have strong fundamentals though with a healthy balance sheet. PLUG’s current ratio is a high 3.0, which means it has more than enough liquidity to handle short-term obligations.
Its growth outlook is also high, with analysts forecasting sales up 39.10% this year and earnings rising 85.40% over the same period. With those figures, the stock is also overvalued with a price-to-sales ratio of 37.5. While the stock is up year to date, it has shown bearish momentum over the past month.
Take a look at the 1-year chart of PLUG below with my added notations:
PLUG has formed key support in the $33 (green) area over the past several weeks. In addition, the stock is also declining against a down trending resistance line (red). These two lines have PLUG stuck within a common pattern known as a descending triangle.
This pattern suggests that the downward momentum is building and a breakdown is forthcoming. Therefore, a short trade could be made on a break of the $33 support level.
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PLUG shares were trading at $36.94 per share on Wednesday morning, up $0.15 (+0.41%). Year-to-date, PLUG has gained 8.94%, versus a 4.92% rise in the benchmark S&P 500 index during the same period.
About the Author: Christian Tharp
I am an expert stock market coach having helped over 4000 beginner and advanced traders & investors from around the world take control of their financial futures. I also write stock market related articles for the Adam Mesh Trading Group and Yolo Publishing.
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