The company that develops, manufactures, and distributes continuous glucose monitoring systems for diabetes management, DexCom, Inc. (NASDAQ: DXCM) seem to be ready for a price correction according to its latest charts.
Bearish Indications
#1 Channel Breakdown: The daily chart shows that the stock was consolidating within an uptrend channel during the past several months. This channel is marked in purple color lines. Currently, the stock has broken down from this channel. This seems like a possible bearish indication.
Daily Chart – DXCM
#2 Rising Wedge Pattern Breakdown: The daily chart shows that the stock had formed a rising wedge pattern during the past few months. This is a bearish pattern and is marked in pink color lines in the daily chart. Currently, it has broken down from the rising wedge pattern, indicating that it may move lower in the near-term.
#3 Bearish Stochastic: In the daily chart, the %K line of the stochastic is below the %D line, indicating possible bearishness.
#4 MACD below signal line: The MACD line (blue color) has currently crossed below the MACD signal line (orange color), indicating possible bearishness.
#5 Supply area: The weekly chart shows that the stock is currently near a supply area, which is marked as a pink color rectangle.
The stock was not able to cross above this level even after multiple attempts. This indicates possible bearishness.
#6 Bearish Divergence between RSI and Price: The weekly chart shows that there is a bearish divergence between RSI and price. This is because while the price was making higher highs, the 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.
Weekly Chart – DXCM
#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 currently moving down from overbought levels, indicating bearishness.
Recommended Trade (based on the charts)
Sell Levels: If you want to get in on this trade, the ideal sell level for DXCM is below the price of $400.
TP: Our first target price is $375 and if the stock closes below this price, the second target price is $350 in the next 3-6 months.
SL: To limit risk, place a stop loss at $415. Note that this stop loss is on a closing basis.
Our target potential downside is 6% to 13% in the next 3-6 months.
For a risk of $15.00, our target rewards are $25.00 and $50.00. This is a nearly 1:2 and 1:3 risk-reward trade.
In other words, this trade offers nearly 2x to 3x 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.
Happy Trading!
— Tara
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