BioNano Genomics Is an Excellent Lesson in Technical Analysis

Stock Market

The art of crafting a headline is a difficult one. Personally, I try to refrain from hyperbolic messaging, but at the same time, it can’t be a dull affair – otherwise, no one would read your article. But with my February coverage of BioNano Genomics (NASDAQ:BNGO) and specifically BNGO stock, I pretty much hit out of the park.

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On Feb. 10, I stated that “BioNano Genomics Is in a Perfect Bull-Bear Tug of War.” Looking back on this, I don’t think I could have called the narrative for BNGO stock any better.

Featuring a heavy dose of technical analysis, I presented both the bullish and bearish interpretation of what could happen next. Basically, BNGO stock was charting what appeared to be a bullish pennant formation between Jan. 25 and Feb. 9 of this year. Based on information about the technical approach, the pennant is one of the more accurate patterns in identifying breakout (or breakdown) moves.

Let me back up for a minute. As a discipline that relies in part on interpretive analysis, it’s difficult to quantify accuracy – a bullish pennant to one person could be something completely different to another. However, our own Chris Tyler identified the same formation that I saw for BNGO stock.

With some nuanced caveats, Tyler generally had a bullish view on BioNano’s future trajectory. Sure enough, BNGO stock did bounce higher fairly significantly, confirming the bullish implications of the pennant at the time.

Still, before the move, I was concerned because the pennant lacked a critical detail – confirming volume trends. Immediately after “peak pop,” BNGO stock initiated a disconcerting descent toward $5. The hemorrhaging has stopped, although stakeholders and prospective buyers are now wondering if this is the start of a genuine recovery, or merely a dead-cat bounce.

BNGO Stock Provides an Important Lesson in Technical Analysis

While price action interpretations is the most crucial aspect of technical analysis, you also want to look for confirming indicators. As the film “The Wolf of Wall Street” so eloquently explained, you just never know when stocks go up, down or in freaking circles.

To better gauge whether a pattern is the real deal, some analysts look to fundamental analysis for supporting information; for instance, whether earnings trends back up the bullishness on the charts. But the drawback with this combo approach is that financial performance metrics are always looking backward.

Not to say that the technical approach isn’t without problems, but at least here, you’re looking at real demand, the point in time where investors have either decided to buy the bullish narrative or to be skeptical and sell it. And that’s why volume is so important.

While BNGO stock did print a bullish pennant, volume levels did not confirm the rising sentiment. In other words, when an equity unit increases in value, you also want to see volume levels increase as well – more people are buying into the narrative.

However, when the price is rising but volume during the rally is declining, this poses three main problems:

  • Lack of conviction overall in the bullish story
  • Fewer people are committed to the higher price
  • If a negative event occurs, it’s much easier to shake out weak hands

That’s why I wasn’t gung-ho on BNGO stock when it printed that pennant. Without the volume rising with it, there wasn’t going to be too much support should sentiment get shaky. We just saw the results of this lack of volume.

Whether you like BioNano or not, I believe BNGO has provided an important lesson for future trades. If you’re gambling on a technical pattern, make sure to at least check the volume.

Where to From Here?

Now, the big question: how should investors approach BNGO stock?

Here are my thoughts and my thoughts alone. First, I don’t like it when stocks print a bullish chart (irrespective of volume) and then don’t make good on it. To me, it suggests that investors are worried about the investment proposition, even if the underlying financials seem positive.

Second, shares are presently straddling the 50-day moving average, which is currently at $10.89. However, volume was strongest when BNGO was around $2. It progressively declined as the price increased by multiples of two.

Again, this suggests that not much support exists around the $9 mark. While buying into this discount relative to its peak is tempting, I think it’s too aggressive. I’m going to wait on the sidelines for this one.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

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