I'll warn you now that if you a fan of or shareholder in Organovo Holdings Inc. (NYSEMKT:ONVO), you're not going to like what you're about to hear. Sorry, but I have to call 'em like I see 'em. And what I see with ONVO is an overbought stock ripe for a big tumble.
First and foremost, if the ticker rings a bell, it may be because yours truly suggested ONVO was overbought and ready to pull back a couple of days ago. So much for my timing. Today, however, a couple of bearish clues have been tacked on, and I don't think Organovo Holdings is going to escape it unscathed.
The biggest clue is just the depth/veracity of today's rollover. The momentum leading up to today has been super-strong, but may have reached 'overheated' levels with the bullish opening gap left behind with today's move. Sure enough, the would-be profit-takers immediately decided enough is enough, and have carried Organovo Holdings shares to their first daily loss in six days.
The other accompanying clue is the amount of volume we've seen behind the pullback. It's a lot already, and the day isn't even over yet. In the shadow of such a big runup like the one we've seen from ONVO this month, when we see such a flood of selling interest after the exponential increase of buying volume driving the big rally, the reversal tends to be a big one, lasting for days, as all those buyers become more and more motivated to shed their Organovo Holdings Inc. In other words, the higher they fly, the farther they fall. It's all fairly apparent on the daily chart below.
There's another, bigger-picture technical reason ONVO is itching for a pullback, though you have to zoom out to a weekly chart to see it. It's the fact that Organovo Holdings shares have broken above not one but two key ceilings. Normally a breakout above technical resistance is a good thing. When you're talking about a small cap stock with a low float - mostly followed by speculators rather than investors - a rally is more prone to a reversal than follow-through. And, blasting past key lines is just the kind of situation where the majority of traders get lulled in... right before the minority sticks it to 'em. The weekly chart of ONVO below tells that tale.
If you're angry or upset about this bearish call on Organovo Holdings Inc., just bear in mind this is only a short-term, technical call that has nothing to do with the company's fundamentals or potential. If that's why you're interested in ONVO, the dip I'm talking about is a buying opportunity.
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