Buy Calls On This Biotech

SGMO stock tends to blow up after pulling back to its 160-day moving average

Apr 19, 2018 at 1:15 PM
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Biotech stock Sangamo Therapeutics Inc (NASDAQ:SGMO) touched a 17-year high of $27.50 on Feb. 22, after the company announced a $3 billion gene-editing deal with Gilead Sciences (GILD). Since then, however, SGMO stock has taken a breather on the charts, pulling back to its 160-day moving average. But if past is prologue, Sangamo Therapeutics shares could be screaming "buy" once again.

The last two times SGMO stock fell to within one standard deviation of its 160-day trendline after a lengthy stretch above it, the equity was higher one month later both times. In fact, the drug stock averaged a one-month gain of 83.91% after these pullbacks, according to Schaeffer's Senior Quantitative Analyst Rocky White.

Sangamo shares were last seen trading around $19.45, flat on the day. Another 83.91% rally from current levels would place the stock around $35.77 -- territory not charted since late 2000.

SGMO stock chart

Further, SGMO recently popped up on our filter of liquid stocks rising in spite of growing short interest. To make the list, the stock has to have seen both its share price and short interest increase by 10% year-to-date, and at least 10% of its float be dedicated to short interest. Currently, nearly 12% of Sangamo Therapeutics available float is sold short, representing nearly a week's worth of pent-up buying demand, at the equity's average pace of trading. A short squeeze could help SGMO resume its quest for new highs.

Meanwhile, speculators can scoop up short-term options on the pharma stock at a relative bargain. The security's Schaeffer's Volatility Index (SVI) of 94% is in just the 25th percentile of its annual range, indicating near-term options are pricing in relatively low volatility expectations for SGMO right now. In the same vein, the stock's Schaeffer's Volatility Scorecard (SVS) of 90 (out of 100) indicates Sangamo shares have easily exceeded options traders' volatility expectations in the past year -- an intriguing factoid for would-be premium buyers.

 

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