I drew out the following conclusion: "I wouldn't expect a ton of upside, but I'm looking for Berkshire shares to finish the summer north of $150 with $148 to $150 the short-term six-week target."
I'm going to go with partly correct here. It only took a few days for Berkshire to reach $148.50 before stalling. Now, looking at the current daily chart, I have to say only the first part of the thesis has any merit. I'm turning cautious on Berkshire here.
The latest pullback in Berkshire will set up some resistance in the $148 area now with the failed breakout continuation. Price has retraced right back to the area I pegged it as bullish. Unless we bounce in the next one or two days off $143, this one feels like it is bound to test the lower end of the current trading channel which puts us near $139. The overall market will have an influence on this name, but we still have to respect the current setup. Momentum and trend are both bearish and failing.
I wouldn't say price has broken down yet, but both the Relative Strength Index and slow stochastics are breaking down. I would ignore this at your own risk. I can't see any reason to be bullish again until we take out the recent highs on price and the Chaikan oscillator. They've worked well as a pair recently, so that's where I will put my focus, on price action plus volume with a glance at momentum and trend.
The longer term picture isn't quite as bleak. The support and resistance on the weekly chart is the same as the daily chart here because of the length and width of the trading channel on that daily chart, so there isn't anything new in terms of price. What is different is the pattern. On the weekly chart, that cumulative daily action just creates a potential bullish flag; however, until $148 is taken out to the upside, there isn't a valid technical reason to buy. Upside is $4 into resistance and downside is $6 into support. That's a negative skew on the risk-reward. Furthermore, note the longer term 21,3 slow stochastics turned lower (bearish) before crossing the 50 midline.
The mid-term 13 period RSI is now below 50, which is also bearish. Lastly, when the longer term Moving Average Convergence Divergence is bearish, as it is now, the best the stock has done is moved sideways. Taking all these into consideration, the best case scenario looks like the stock trades sideways, but the risk-reward is tilted to favoring a move lower rather than higher hence my belief caution is warranted. If anything, I think selling bearish call spreads is the play on Berkshire right now planting that first short leg around $150.
Editor's Note: This article was originally published at 11:30 a.m. EDT on Real Money on May 26.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.