The company that develops, manufactures, and distributes continuous glucose monitoring systems for diabetes management, DexCom, Inc. (NASDAQ: DXCM) seems to be poised for a decline in its price in the near term as per its latest charts.
#1 Rising Wedge Pattern Breakdown: The daily chart shows that DXCM has recently broken down from a rising wedge pattern that was formed during the past few months. This is a bearish pattern and is marked in pink color lines in the daily chart. Once a stock breaks down from the bottom of the rising wedge pattern, it typically moves lower in the near-term.
#2 MACD below signal line: The MACD line (blue color) is currently below the MACD signal line (orange color), indicating bearishness.
This indicates possible bearishness.
#4 Bearish ADX and DI: The ADX and DI indicate bearishness.
This is because (+DI) < (-DI); ADX and (-DI) are above (+DI); and ADX has risen above both (+DI) and (-DI).
#5 RSI-Price Bearish Divergence: The weekly chart shows that there is a bearish divergence between RSI and price.
This is because while the price was making higher highs, RSI was forming lower highs. This usually indicates the possibility of an upcoming bearish move. The bearish divergence is marked as blue color dotted lines in the chart.
#6 Supply area: The weekly chart shows that the stock is currently near a supply area, which is marked as an orange color ellipse. The stock was not able to cross above this level since the past few weeks. There was also a small green candle formed with a very high volume during the week ending May 11, 2020, which is marked as a pink color ellipse. All these indicate possible bearishness.
#7 Bearish Stochastic: The stochastic in the weekly chart is near overbought levels and moving down. The %K line has also crossed below the %D line. All these indicate possible bearishness.
#8 Bearish RSI: The RSI is moving down after reaching overbought levels, indicating possible bearishness.
Recommended Trade (based on the charts)
Sell Levels: If you want to get in on this trade, you can take short positions on DXCM below the close of yesterday’s candle. This translates to a price of around $359.00.
TP: Our target prices are $340 and $325 in the next 3-6 months.
SL: To limit risk, place a stop loss at $367. Note that this stop loss is on a closing basis.
Our target potential downside is 5% to 10% in the next 3-6 months.
For a risk of $8.00, our target rewards are $19.00 and $34.00. This is a nearly 1:2 and 1:4 risk-reward trade.
In other words, this trade offers nearly 2x to 4x rewards compared to the risks.
Risks to Consider
The stock may reverse its overall trend if it breaks upwards from the rising wedge pattern with high volume. The breakout of the stock could also be triggered in case of any positive news, overall strength in the market, or any regulatory changes in its sector.
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