Shares in Dexcom (DXCM) plunged in extended trading Thursday after the medical devices company posted second-quarter results that came in below Wall Street expectations and slashed its annual revenue forecast. The stock lost more than a third of its value, signaling a potential breakdown from a symmetrical triangle chart pattern. Investors should monitor key levels on the chart where the stock could attract buying interest.
Expected Breakdown From Symmetrical Triangle
Dexcom shares have been oscillating within a symmetrical triangle since mid-November last year. This chart pattern consists of two converging trend lines that connect a series of sequential peaks and troughs, representing a pause in the prevailing trend as bulls and bears reach an equilibrium. Typically, the pattern precedes a trending move in the direction of the breakout, which, in this case, is expected to be lower due to the company’s disappointing sales outlook.
Monitor These Key Levels Amid Earnings Sell-Off
Although the bears are likely to take control in the short term, investors should keep an eye on four specific areas on the chart where the stock could find support. The first level to watch is $70, where the shares could encounter support from a horizontal line connecting a February 2020 price peak with the lowest point of the symmetrical triangle.
If the stock fails to hold above $70, a decline to around $52 could be expected. This region may find support from the low of two profit-taking areas on the chart in December 2019 and during the pandemic-induced rout in March 2020.
Further selling pressure could trigger a decline to the $37 level, where the price may attract buyers near several prominent price peaks and a period of narrow consolidation that formed between September 2018 and October 2019.
In the event of a more severe longer-term correction, the shares may revisit $24, where a level of significant prior resistance on the chart could flip into support.
Relative Strength Index (RSI) Analysis
Investors should also keep an eye on the relative strength index (RSI), which is expected to move into oversold territory following the earnings-fueled selling. In the past, when the RSI has fallen below the 30 threshold since 2016, Dexcom shares have gone on to gain at least 40% within the next six months. This indicates a potential buying opportunity for investors.
Conclusion
Shares in Dexcom experienced a significant decline in after-hours trading due to disappointing second-quarter results and a lowered revenue forecast. The stock’s chart pattern suggests a potential breakdown from a symmetrical triangle, indicating a downward trend. However, investors should monitor key levels on the chart where the stock could attract buying interest, such as $70, $52, $37, and $24. Additionally, the RSI analysis suggests a potential rebound in the coming months. As always, investors should conduct thorough research and consider their risk tolerance before making any investment decisions.
Disclaimer: The comments, opinions, and analyses expressed in this article are for informational purposes only and should not be considered as individual investment advice. The author does not own any of the securities mentioned above.
