The clinical stage biopharmaceutical company based in Boston, Massachusetts with a broad focus on developing medicines that regulate the transforming growth factor beta (TGF-β) superfamily of proteins, Acceleron Pharma Inc. (NASDAQ: XLRN) seems to be poised for a decline in its price in the near term as per its latest charts.
Bearish Indications
#1 Rising Wedge Pattern: The daily chart shows that the stock has been forming a rising wedge pattern during the past few months. This is a bearish pattern and is marked in purple color in the daily chart. The stock is currently moving down from the top of this rising wedge pattern. If the stock breaks down from the bottom of the rising wedge pattern, it can move lower in the near-term.
Daily Chart – XLRN
#2 Bearish Candle: The latest candle is a bearish doji candle. This indicates that there is currently indecision between sellers and buyers. Once a stock closes below the close of the Doji, it usually indicates the beginning of a downtrend.
#3 Bearish RSI: The daily chart shows that the RSI is currently moving down after reaching overbought levels.
This is a possible bearish indication.
#4 Overbought Stochastic: The stochastic in the daily chart is currently near overbought levels and moving down.
The %K (blue color) line is also below the %D (orange color) line, indicating possible bearishness.
#5 Supply area: As you can see from the weekly chart, the stock is currently trading near a supply area.
This is marked as an orange ellipse. Whenever the stock attempted to cross above the top of this level, it had repeatedly bounced back down, indicating that there is a distribution happening at this level. This is a possible bearish sign.
Weekly Chart – XLRN
#6 Bearish Stoch: In the weekly chart, the %K line (blue color) of the stochastic is currently below the %D line (orange color), indicating possible bearishness.
#7 RSI-Price bearish divergence: The weekly chart shows that there is a bearish divergence between RSI and price. This is marked as blue dotted lines. While the price was making higher highs, RSI was forming lower highs. This is a possible bearish sign.
Recommended Trade (based on the charts)
Sell Levels: If you want to get in on this trade, the ideal sell level for XLRN is if it corrects to a price of around $90.
TP: Our target prices are $80 and $70 in the next 3-6 months.
SL: To limit risk, place a stop loss at $95.70. Note that this stop loss is on a closing basis.
Our target potential downside is 11% to 22% in the next 4-6 months.
For a risk of $5.70, our target rewards are $10.00 and $20.00. 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.
Happy Trading!
Tara