Join +750K new investors every month who copy stock picks from billionaire's portfoliosSign Up Free

Lessons From The Dexcom Breakout

Published 03/13/2018, 01:15 AM
Updated 07/09/2023, 06:31 AM
ABT
-
DXCM
-

Five months ago, I made the case for bottom-fishing in DexCom (NASDAQ:DXCM) following the news of competitor’s Abbott (NYSE:ABT) product approval. The trade was looking shaky a few weeks later when the stock made a minor new closing low from that price collapse. November earnings produced the catalyst to confirm the bottom, and the stock was off to the races for a little over a month.

Soon after the stock started drifting downward, an analyst downgraded the stock to underperform. The selling was enough to create a breakdown below 50-day moving average (DMA) support. I stopped out my position to preserve my remaining profit – concerned that the market’s response validated the analyst action. DXCM never traded lower even after cutting revenue guidance a few days later. After two months of additional consolidation, DXCM broke out on Monday.DXCM Chart

DexCom (DXCM) printed a very bullish breakout above its 200DMA on a 6.6% gain. A close of the September gap down is now within sight.

While the volume did not surge on the breakout, the move still looks bullish given the context: an on-going push to fill September’s massive gap down and the contrary buying pressure in the wake of a bearish downgrade and a somewhat disappointing earnings report. On Tuesday, DXCM will appear at the Barclays Global Healthcare Conference. I assume that investors are anticipating very good news.

I received a reminder of a very simple lesson: the power of the confirmation…or the lack thereof. In this trade, I was too eager to preserve my profits ahead of confirming a breakdown. A confirmation would have been a lower close. I should have used my profit to buffer against the emotional urge to react with the crowd. Moreover, the stock was over-extended below its lower-Bollinger Band (BB) and thus over-stretched; the hurdle was high for the stampede to continue exiting the stock!

Note well…DXCM’s breakout needs its own confirmation: a higher close.

Be careful out there!

Full disclosure: no positions

Latest comments

Loading next article…
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.