The Cambridge, Massachusetts-based discovery-phase pharmaceutical company which aims to develop therapies based on CRISPR–Cas9 gene-editing technology, Editas Medicine Inc. (NASDAQ: EDIT) seems to be getting ready for a price bump according to the charts.
Bullish Move – Chart Indications
#1 Channel Breakout: As you can see from the daily chart of EDIT, the stock was trading within a channel for the past several weeks. This channel is marked as pink color lines. It had typically taken support at the lower rail of the channel before bouncing back again. The stock has currently broken out of the channel, which is a possible bullish sign.
Daily Chart – EDIT
#2 Price Above MAs: The stock is currently trading above its 50-day as well as 200-day SMA, which implies that the bulls are currently in control.
[hana-code-insert name=’adsense-article’ /]#3 Bullish Aroon: The value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30 in the daily chart.
This indicates possible bullishness.
#4 MACD above Signal Line: The MACD (light blue color) is currently above the MACD signal line (orange color) in the daily chart.
This typically indicates a bullish setup.
#5 Bullish ADX and DI: The ADX indicator shows bullishness because (+DI) is greater than (-DI), ADX and (+DI) are above (-DI), and ADX is rising from below both (+DI) and (-DI).
These point to a possible upmove in the near-term.
#6 Triple Bottom Pattern Breakout: As seen in the weekly chart, the stock had formed a triple bottom pattern. This is marked in purple color. A triple bottom pattern is a strong bullish pattern. A breakout from the pattern usually foretells the possibility of an upmove in the short term.
Weekly Chart – EDIT
#7 Bullish Stoch: The %K line is presently above the %D line in stochastic. It is also moving up from oversold levels. This is a possible bullish sign.
#8 Trading Above MA: The stock is currently trading above its 50-week SMA, which implies that the bulls are currently gaining control.
#9 MACD Above Signal Line: In the weekly chart as well, the MACD line (light blue color) is currently above the MACD signal line (orange color). This is also a possible bullish sign.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for EDIT is if it corrects to the support level of $27.60. This is marked as a green dotted line.
However, for those with a higher risk appetite, you can purchase half the intended quantity of shares of EDIT if it trades above Friday’s close. This translates to a price of around $30.30.
TP: Our target prices are $40 and $45 in the next 3-6 months.
SL: To limit risk, place a stop loss below $24.20. Note that the stop loss is on a closing basis.
Our target potential upside is nearly 32% to 63% in the next 3-6 months.
- Entry at $27.60: For a risk of $3.40, our target rewards are $12.40 and $17.40. This is a 1:4 and 1:5 risk-reward trade.
- Entry at $30.30: For a risk of $6.10, our target rewards are $9.70 and $14.70. This is a nearly 1:2 risk-reward trade.
In other words, this trade offers almost 2x to 5x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down from the downtrend channel and goes below it. 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.
Happy trading!
Tara
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