The public pharmaceutical company based in Waltham, Massachusetts that focuses on drug development for cancer, TESARO Inc. (NASDAQ: TSRO) shows signs of an upcoming price surge based on its latest charts.
#1 Double Bottom Pattern: In the daily chart of TSRO, there is a Double Bottom pattern being currently formed. This is marked in the chart in orange color as shown below. A double bottom pattern is a bullish pattern and a breakout from it indicates that the stock price may increase in the near future.
#2 MACD above Signal Line: The daily chart shows that the MACD line (blue color) is currently above the signal line (orange color). This is a possible bullish setup.[hana-code-insert name=’adsense-article’ /]#3 Above MA: The stock is currently trading its 50-day SMA.
This implies that the bulls are currently in control. It also acts as a good support level.
#4 Bullish RSI moving up: In the daily chart, the RSI is above 50 and moving upwards.
This indicates possible bullishness.
#5 %K above %D: The %K line of the stochastic is currently above the %D line, indicating bullishness.
#6 Near Long-term Support: The weekly chart of TSRO shows that the stock is currently near a long-term support level. This is marked as a blue dotted line. This seems like a good level for the stock to bounce back upwards.
#7 Bullish, Divergent RSI: The RSI is moving up from oversold levels. There is also a bullish divergence between RSI and price. The RSI made a higher low while the price made a lower low. This indicates that the selling pressure is reducing and the stock might reverse soon.
#8 %K above %D: The %K line of the stochastic is currently above the %D line in the weekly chart as well, indicating bullishness.
Recommended Trade (based on the charts)
Buy Price: If you want to get in on this trade, you can purchase half the intended quantity of shares of TSRO at the current price of $36.83. The remaining shares can be purchased once the stock breaks out of the double bottom pattern and closes above the 200-day SMA in the daily chart. This translates to a daily close above $44.40.
TP: Our target prices are $55 and $65 in the next 3-5 months.
SL: To limit risk, place a stop loss below $34.20 (for entry at the current price of $36.83) and below $40.40 (for entry above double bottom breakout price at around $44.40). Note that stop losses are on a closing basis.
Our target potential upside is almost 24% to 77% in the next 3 to 5 months.
- Entry at $36.83: For a risk of $2.63, our target rewards are $18.17 and $28.17. This is a 1:7 and 1:11 Risk-Reward trade.
- Entry at $44.40: For a risk of $4.00, our target rewards are $10.60 and $20.60. This is a nearly 1:3 and 1:5 Risk-Reward trade.
In other words, this trade offers nearly 3x to 11x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down with high volume the current levels before completing the formation of the double bottom pattern. 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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