Long-Term Outlook For CRISPR Therapeutics: October 11, 2018

About: CRISPR Therapeutics (CRSP)
by: The Freedonia Cooperative


CRISPR Therapeutics got some good news this week with a clinical hold lifted, but it has a long way to go to make up for the share performance of late.

An earnings report is due in about four weeks, and trading until then will reflect investor confidence in the gene editing company.

The patterns on the weekly charts suggest there is more downward pressure on price, even after the boost from the lifted hold.

The stock of CRISPR Therapeutics (NASDAQ:CRSP) was trending downward until the recent announcement that a vital clinical hold has been lifted. The announcement saw shares bounce back up +3%, even on a rough macro market day. Still, the stock has a long way to make up for the falls it has seen in 2018.

The charts show some very interesting possibilities that should make for interesting trade setups in the next few weeks - still very relevant with this week's price bounce.

With the company's Q3 earnings report expected to come in the first week of November, the next few weeks of trading will show optimism for both the science and the financial. The latter is important, as CRSPR has made some controversial moves with regard to its shareholdings.

Of course, most vital to the price will be the outcome of the clinical trials of CTX001, the anti-sickle cell medication which has been developed by the company.

Technical Outlook

The weekly chart shows that the price action has evolved into a head and shoulders pattern. This pattern has resolved with the expected outcome: a break of the neckline to the downside. Kudos if you were able to catch this move. They do not come any clearer than this.

CRSP Weekly Chart: October 9, 2018

But if you just spotted this move, it is quite late in the day to attempt to short CRSP based on this pattern. The projection move of price in a head and shoulders pattern post breakout is expected to be the same measurement as the distance from the head to the neckline. From the chart, it can be seen that this price move is too far gone to attempt any short positions.

There are, however, other interesting patterns seen on the chart.

CRSP Daily Chart: October 9, 2018

The following can be seen:

  1. There is a downward channel, with the price candle for the week now planted firmly on the channel’s lower trend line.
  2. The Fibonacci retracement levels are also shown. The next level which will provide support is the 61.8% Fibonacci retracement level at $36. The lower channel line intersects this retracement level, and this may provide reinforcement of the support area.

So, what are the trade scenarios for CRSP going forward?

Trade Scenario 1

The 61.8% Fibonacci retracement level is the next price level to be tested. This move may not necessarily occur this week; it may take some time. If the candle does not close below either the lower channel line or this Fibonacci level at the end of the week, it is possible that new candles that will test these levels will form in the next 2-3 weeks. Continued tests and the failure to break these areas will see the price action turning upwards to move towards the upper channel line. However, any upside moves to the upper channel line will have to contend with the 50% and 38.2% Fibonacci levels as possible resistance areas.

Trade Scenario 2

The second trade scenario will consider the price projected outcome for the head and shoulders pattern. As a general rule, the following applies:

Distance from neckline to projected end of move = Distance from the head to the neckline

The price peak that forms the head is at the $70 mark. The neckline is at the $48 price level, which gives a distance of $22. Projecting this downward, we expect the head and shoulders price move to be completed at $22 less than the price at the neckline, which is $48 - $22 = $26.

Guess what? The 78.6% Fibonacci level is at the $26.56 mark. Therefore, if we are to use this solely as the benchmark for the possible price moves, then we can assume that there is a high possibility of the price action breaking below the 61.8 Fibonacci level and extending all the way south to the 78.6% level.

Traders of CRSP will, therefore, have a lot of things to look out for in deciding their trade direction. If these price moves do not resolve themselves by the time the earnings report is released on November 5, then the price moves will have to take a cue from market action.

Disclaimer: This analysis was done on a weekly chart. It takes a whole week for a candle to form, so these moves 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 am/we are long CRSP.

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.