The clinical-stage biopharmaceutical company committed to developing novel medicines to transform the lives of patients with life-altering central nervous system (CNS) disorders, SAGE Therapeutics Inc. (NASDAQ: SAGE) seem to be poised for a price surge as per its latest charts.
#1 Falling Wedge Pattern: As you can see from the daily chart, SAGE has been trading within a falling wedge pattern during the past few months. This is marked in pink color in the daily chart.
A Falling Wedge Pattern is a bullish pattern.
Once the stock moves up and breaks out from it, it has the potential to move further up.
Note: The stock was in a strong uptrend for the past several weeks.
Then the stock started consolidating and was in a narrow range.
This is a classic flag pattern, which is a continuation pattern.
The flagpole is marked as a purple line in the daily chart. Whenever a stock breaks out of the flag pattern, it typically continues its previous trend which is an uptrend in this case.
#2 RSI Near Oversold: The daily chart of shows that the RSI is currently nearing oversold levels. This points to a possible reversal.
#3 Above MA: The daily chart shows that the stock is currently trading above its 200-day SMA. This implies that the bulls are still in control.
#4 Double Bottom Pattern: From the daily chart of SAGE, we can see that the stock is currently forming a Double Bottom pattern. This is marked in the chart in purple color. A double bottom pattern is a strong bullish pattern and indicates a possible upmove in the short term.
#5 Unbroken Uptrend in Weekly Chart: As evident from the weekly chart, the stock is in an uptrend as it has been making higher highs and higher lows for the past several weeks. The stock is also above its 50-week SMA. These are all bullish signs.
#6 Good Support Levels Nearby: There is a good support level for the stock nearby. The stock has currently taken support at the 61.8% Fibonacci retracement level. This seems like a good level for the stock to bounce upwards.
#7 Oversold Stochastics: The stochastics oscillator shows that it is currently near oversold levels. The %K (blue) line is currently below %D (orange) line and seems to be ready to move up. Once this happens, it indicates a possible reversal from the current short-term downtrend.
Note: However, the MACD line has crossed below the signal line in the daily and weekly chart, pointing to the possibility of a little more near-term decline before the start of the upmove.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, you can purchase the shares of SAGE in any of the two scenarios
- If the stock corrects to the bottom of the falling wedge pattern. This translates to a price of around $138 to $140.
- If the stock breaks out from the falling wedge pattern. This translates to a price of around $162.
TP: Our target prices are $185 and $200 in the next 4-6 months.
SL: To limit risk, place stop-loss at $134.50 (entry near $138) and $155 (entry near $162). Note that stop loss is on a closing basis.
Our target potential upside is 14% to 45% in the next 4-6 months.
- Entry at $138: For a risk of $3.50, our target rewards are $47 and $62. This is a 1:13 and 1:17 risk-reward trade.
- Entry at $162: For a risk of $7, our target rewards are $23 and $38. This is a 1:3 and 1:5 risk-reward trade.
In other words, this trade offers nearly 3x to 17x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down from the falling wedge pattern support with a high volume. The sell-off of the stock could also be triggered in case of any negative news, overall weakness in the market, or any regulatory changes in the sector.
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