Long-Term Outlook For Sangamo Therapeutics

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

Sangamo prices have reached crucial resistance levels in a retracement analysis.

Despite a recent boost, the price has been declining since April, buoyed by a EPS loss last quarter.

Still revenue increases are bullish and there's some recovery signs in SGMO technicals.

Mid-term analysis still looks slightly bearish, though longer-term could be brighter.

The price action of the stock of Sangamo Therapeutics Inc (SGMO) shows that price has encountered two key resistance levels: the 61.8% Fibonacci level as well as the upper border of the falling wedge pattern. This leaves price at a very critical juncture, and what happens next as from Monday December 3 could be critical to December’s price action for SGMO. Read the analysis for this stock below.

Fundamental Outlook

The last earnings report for SGMO showed a 99% increase in revenues for the company, with earnings per share (EPS) of -$0.13, which was 2 cents better than the expected EPS figure. This earnings result seems to have buoyed the stock price of SGMO and has countered the drop in share price that was occasioned by the poor performance of clinical trials on its drug being developed for the treatment of Hunter’s syndrome.

Today, reports are showing that Sangamo will announce somewhere near $34 million in revenue for the fiscal quarter, a jump of near 2.5x from last year's total. This is bullish news for the biotech firm, however, performance in clinical trials will weigh heavier on future investors outlook for SGMO.

Technical Outlook

The weekly chart shown below shows the price action of SGMO for 2017 and 2018. It can be seen that price has been in retracement mode since attaining its 2018 highs in April.

SGMO Weekly Chart: November 30, 2018

Price action retraced all the way to the 78.6% Fibonacci retracement price level of $8.93 and bounced at that level. Following this bounce, price has now approached the 61.8% price level ($12.80), though it is still a few cents short at $12.37. It is expected that price action will test this price area as an initial resistance.

It is also important to look at the daily chart, which not only shows the various Fibonacci retracement areas but also a falling wedge pattern which has developed over the last 4-5 months.

SGMO Daily Chart: November 30, 2018

The expected resolution of a falling wedge pattern is usually for price action to break to the upside. But in this case, the price is not only contending with the upper wedge trendline, but also the 61.8% Fibonacci price area identified as the next long term resistance that is confronting SGMO’s stock price.

Putting all this information together, what is the expectation for SGMO heading into the last month of 2018?

Trade Scenario 1

The falling wedge is expected to end in a bullish breakout. The question is: when? A look at the pattern on the daily chart will show that there is still a lot of space between the trendlines which border the wedge, and we are not yet close to the point of convergence. Moreover, the presence of the overhanging resistance at the 61.8% Fibonacci area is adding to the obstacles that price action will face in attempting a break to the upside. Therefore, the 1st scenario that we could see with SGMO is for price to at least test the 61.8% Fibonacci price level of $12.80, which is very close to the upper border of the falling wedge pattern. This double-edged resistance could prove too strong for price action and we could see another retreat back to the 78.6% Fibonacci area. Coincidentally, the lower border of the falling wedge is going to cross very close to this price area. So we could see price extending below the 78.6% Fibonacci retracement price of $8.93, touch the wedge border below and close back above the $8.73 price area to maintain the integrity of the falling wedge.

If this plays out, expect price to keep testing the wedge borders until very close to convergence, or to keep testing the 61.8% and 78.6% Fibonacci retracement levels in sequential manner until one of these key levels gives way.

Trade Scenario 2

Another scenario may be that the price action may break the upper border of the falling wedge to complete the expected price resolution for this pattern. This also takes the price above the 61.8% Fibonacci price level of $12.80. If this occurs, then we can expect price action to make a run for the 50% Fibonacci price area at $15.52. But for this scenario to occur, any such breakouts must be preceded by a sharp increase in buying volume, signaled by a sharp lengthening of the green volume bars.

Market Sentiment

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

  • Long-Term – neutral to bullish
  • Mid-term – neutral to bearish

The long-term market sentiment as seen on the weekly chart is deemed to be neutral because at this time, it cannot be determined if price will break out of the wedge pattern. We need to watch for price action in the next two weeks to determine the new market sentiment.

Please note: this analysis was done on weekly and daily charts. It takes a whole week for a candle on the weekly chart to form, so the price moves described above may take some time 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.