The biotechnology company based in Austin, Texas, Luminex Corporation (NASDAQ: LMNX) 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 near 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 – LMNX
#2 Bearish Reversal Candle: The latest candle is a shooting star which is a bearish candle. This bearish reversal candlestick pattern typically occurs at the top of uptrends and indicates that there is a selling pressure at higher prices.
[hana-code-insert name=’adsense-article’ /]#3 Bearish Divergence between RSI and Price: The daily chart shows that there is a bearish divergence between RSI and price.This is marked as pink dotted lines. While the price was making higher highs, RSI was forming lower highs.
This indicates bearishness.
#4 Bearish Stochastic: The stochastic in the daily chart is currently near overbought levels and moving down.
The %K line has also crossed below the %D line. All these indicate possible bearishness.
#5 Steep Upmove After Consolidation: As seen from the weekly chart, the stock had consolidated for a while before starting the upmove. The recent upmove has been a steep one, as evident in the weekly chart. Such steep moves usually result in a correction, and the stock seems ready for one.
Weekly Chart – LMNX
#6 CCI moving down: The CCI in the weekly chart is currently moving down from overbought levels. There is also a bearish divergence between CCI and price. All these are possible bearish signs.
#7 Overbought Stochastic: The stochastic in the weekly chart is also near overbought levels and moving down. The %K line has also crossed below the %D line. All these indicate possible bearishness.
#8 RSI overbought: The RSI in the weekly chart is near overbought levels. This is a bearish sign.
Recommended Trade (based on the charts)
Sell Levels: If you want to get in on this trade, you can take short positions on LMNX at the current price of $34.72.
TP: Our target prices are $29 and $25 in the next 3-5 months.
SL: To limit risk, place a stop loss at $36.20. Note that this stop loss is on a closing basis.
Our target potential downside is 16% to 28% in the next 3-5 months. For a risk of $1.48, our target rewards are $5.72 and $9.72. This is a nearly 1:4 and 1:6 risk-reward trade.
In other words, this trade offers nearly 4x to 6x 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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