Cepheid (NASDAQ: CPHD)

Cepheid, a molecular diagnostics company, develops, manufactures, and markets integrated systems for testing in the clinical market and non-clinical markets. Its systems enable molecular testing for organisms and genetic-based diseases by automating manual laboratory procedures. The company primarily offers GeneXpert system that integrates sample preparation in addition to DNA amplification and detection. The GeneXpert system is designed for reference laboratories, hospital central laboratories, and satellite testing locations, such as emergency departments and intensive care units within hospitals, as well as physician offices and other alternate site laboratories.

Take a look at the 1-year chart of Cepheid (NASDAQ: CPHD) below with added notations:

1-year chart of Cepheid (NASDAQ: CPHD)

CPHD had been trading sideways for the first part of 2015, and then the summer drop came. After the decline, the stock started trading sideways over the most recent three months. While in that sideways move, the stock has formed a common pattern known as a rectangle. A minimum of (2) successful tests of the support and (2) successful tests of the resistance will give you the pattern.

The CPHD rectangle pattern has formed a resistance at $38 (red), and a $30 support (green). At some point the stock will have to break one of the two levels.

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The Tale of the Tape: CPHD is trading within a rectangle pattern. The possible long positions on the stock would be either on a pullback to $30 or on a breakout above $38. The ideal short opportunity would be on a break below $30.

Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.

No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade. Capital preservation is always key!

Good luck!

Christian Tharp, CMT

Follow me on Twitter: @cmtstockcoach