Biotech Sangamo Therapeutics (SGMO) has been underperforming on the charts, to say the least. The stock was hammered in early September on early trial results for its experimental Hunter syndrome treatment, which involves in vivo gene editing, writes Elizabeth Harrow.
While Sangamo called the results “encouraging,” the biotech was unable to quantify changes in the enzyme deficiency characteristic to Hunger syndrome.
By the close of trading on Wednesday, Sept. 5, the stock was down 23.6% for the session -- a massive single-day sell-off that carried SGMO back below both its 160-day and 200-day moving averages, following a short-lived three-day win streak above this trendline pair. Now, following SGMO’s recent rally back up to -- and subsequent rejection from -- these two moving averages, it looks like more short-term downside is in store.
Specifically, Schaeffer’s Senior Quantitative Analyst Rocky White found that as of this past Tuesday, Oct. 2, SGMO was back within one standard deviation of its 160-day and 200-day moving averages. Over the past three years, there have been two prior instances of the stock rising up to test resistance at these trendlines after prolonged periods trading beneath them, and the results going forward have been unequivocally bearish.
Starting with the 160-day, SGMO’s average return five days after a test of this resistance is a loss of 22.38%, with zero positive returns. One month later, it’s a 50-50 chance as to whether the stock is trading higher, but the average return is a decline of 7.73%.
As for the equity’s performance following previous tests of resistance at its 200-day trendline, SGMO is trading lower 100% of the time five days later, with an average drop totaling 13.44%. And one month later, the shares are down 1.07%, on average, with 50% of the returns negative.
Short sellers have been piling on lately, and a continuation of this activity could help to drive the stock lower following SGMO’s latest rejection from stubborn chart resistance. Short interest rose by nearly 28% in the most recent reporting period, and now accounts for 18.2% of the equity's float.
There’s plenty of room for downgrades, too, which could spark fresh selling pressure in the weeks ahead. Despite the stock’s 43% plunge from its March year-to-date closing high of $26.35, SGMO still boasts six Buy or better ratings from analysts, compared to one Hold and zero Sell ratings. Any negative notes from this unusually bullish group could provide a bearish catalyst in the short term.
Despite SGMO’s wild price action of late, short-term options on the stock are fairly affordable, from a volatility perspective. Trade-Alert pegs 30-day at-the-money implied volatility (IV) at 80.5%, which registers in the mild 42nd percentile of its annual range. As such, traders looking to take advantage of another leg lower for Sangamo Therapeutics stock may want to consider short-term put options.
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