Long-Term Outlook For Sangamo: October 10, 2018

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About: Sangamo Therapeutics, Inc. (SGMO)
by: The Freedonia Cooperative

Summary

SGMO has slid down in the last few months, and the outlook doesn't look optimistic from here.

Poor performance on clinical trials started the downward trend, and an earnings report later this month could slide it deeper.

Long-term and mid-term outlook is negative for SGMO.

The price action of the stock of Sangamo Therapeutics, Inc. (SGMO) shows the possibility of a continuation of downside movement, given the picture seen on the weekly chart. Below is a weekly chart analysis of SGMO, a company using gene-editing technology for the development of treatments for gene-mediated blood disorders such as hemophilia, sickle cell disease, and thalassemia.

Fundamental Outlook

The stock price was down at the close of September 2018 by 22%. The drop in share price was a direct consequence of the poor performance of clinical trials on its drug being developed for the treatment of Hunter's syndrome. The company's MPS II trial did not meet some of the expectations of the study, leading to the sharp drop in price. It has not been able to recover since then and is actively in bearish mode.

The Q3 2018 earnings report for this company is to be released on October 22, 2018. The earnings numbers contained in this report will help traders determine where their trades should go.

Technical Outlook

The weekly chart shown below displays the long-term outlook on the SGMO stock as of October 8, 2018. The price pattern on the chart is contained within two converging trendlines, which define both the highs and lows of price action. The red descending trendline is the long-term resistance line, which is presently touching the $16 mark, while the purple ascending trendline is the price action support located at the $12.50 mark.

SGMO Weekly Chart: October 8, 2018

The point marked (area of interest) is the expected price target of the current downward move. This point rests on the support line, and is expected to be tested by the price candles as has already been done on three previous occasions.

Also of interest on this chart is the various Fibonacci retracement levels shown on the chart, as well as the peculiar candlestick pattern. Both are shown below, where we see price action finding resistance at two points on the 38.2% Fibonacci retracement line. We also see the falling three methods candlestick pattern, which usually has a bearish outcome.

We also see that the candle for the week ended October 5, 2018, which was also the candle that completed the falling three methods pattern, quite easily broke through the 50% retracement level ($15.25 mark). So what do the charts tell us as far as price action for the week is concerned?

Trade Scenario 1

The presence of the falling three methods pattern, and the fact that the completion of this pattern also saw the break of the 50% Fibonacci support level, have opened the way for this week's candle to make a push for the next price target, which is the 61.8% Fibonacci level at $12.50. This level also corresponds to the region where the ascending trendline support intersects the 61.8% Fibo level. This move could be completed as early as this week, or it may take some time to accomplish.

Trade Scenario 2

Another scenario may be that the price candles may attempt an upside pullback to the 50% Fibo level that was broken. Due to the role reversal of broken price support areas, we expect the 50% Fibo line to firmly resist the pullback, and resume the downside move to the $12.50 price level. This will provide an opportunity for cheaper re-entry for traders who want to trade the falling three methods pattern by shorting SGMO. The 10EMA line is also expected to provide additional resistance to price action at the $15.25 price area.

Market Sentiment:

The long-term and mid-term outlook of SGMO is:

  • Long-Term - bearish
  • Mid-term - neutral

The long-term market sentiment as seen on the weekly chart is bearish, due to the presence of the bearish candlestick pattern, the downside break of the previous support at the 50% Fibonacci line, and the overhanging 10 EMA which will provide extra price rejection.

Please note: This analysis was done on a weekly chart. It takes a whole week for a candle to form, so the price moves described above may take several weeks to play out. Entries should be made on shorter time frame charts such as the daily chart or the hourly chart.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.