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Medical 3D-Printing Company Organovo (ONVO) Plunges Past Support, 200-Day SMA

By  +Follow March 27, 2014 5:35AM
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Shares of small-cap 3D-printing company Organovo (ONVO) plunged in early trading on Thursday, losing over 10 percent on heavy volume before recovering to losses close to 9 percent. The company, which makes 3D printers capable of replicating human tissue for use in laboratory settings, didn’t have a clear news item that would appear to be driving selling. However, the stock has been experiencing a general pullback from the 52-week high it reached on November 18 last year.

Shares opened down about 1.5 percent at $8 and plunged to close to $7.50 before recovering to hover around $7.75 for much of the morning. The major losses didn’t begin to mount until just before 11:30 am ET, at which point volume increased heavily and shares fell sharply, hitting a low of $7.16 apiece and mostly trading below $7.25 a share.

The timing and size of the move would seem to indicate a specific piece of news sparking a sell-off, but there weren’t any particular actionable news items to speak of. The company had presented at the 2nd Annual Regen Med Investor Day on Wednesday, but it’s unclear that any of the content of that presentation could be at the root of the day’s move.

Technical Factors, Chart May be Culprit for ONVO Sell-off

A close look at the chart patterns, though, may indicate some technical factors that could have helped motivate the run. Since a heavy sell-off in mid-November when the rumored buyout that appeared to be spurring a huge spike failed to materialize, the stock has been pulling back significantly, falling over 40 percent from its 52-week high to the closing bell yesterday. However, throughout this pullback, shares appeared to have strong support at $8 since crossing that level in early November.

Since reaching its 52-week high, a triangle pattern appeared to be forming as resistance kept falling and a second, rising support level approached it. As such, the more-recent sell-off that started on March 18 and had shares down over 7 percent through yesterday appeared to be a downward breakout from that pattern.

However, today’s open price began flirting with that long-term support level at $8 and dipped below it, the first time shares had hit that level in almost five months. After trading below $8 for much of the morning, it’s possible that traders started to get the sense that the important barrier wasn’t going to hold and a bounce back wasn’t forthcoming. A sentiment that was probably reinforced when the stock crossed its 200-day SMA from above at about $7.50 a share.

More Correction...or a Buying Opportunity?

However, the potential for a bounce-back in the next few days also appears strong based on the technical profile of the stock and given that the sell-off doesn’t appear to be motivated by the specifics of the company but rather a general pullback from an artificial high created by buyout rumors.

The breaking of the support level at $8 may not hold for long, and bargain buyers may see it as a chance to get in on a company with a very hot technology with a potentially bright future. 3D printing is an industry that very likely has much to look forward to, and Organovo is one of the more unique plays in that segment.

That sentiment is likely to be bolstered by anyone considering the 14-day RSI and 14-day stochastic RSI for the stock. Today’s sell-off has pushed the 14-day RSI below 30.00, a level that’s traditionally considered the barrier for oversold territory. And the 14-day stochastic RSI has been below 0.20, also traditionally the barrier for a stock being considered oversold, since yesterday.

Finally, the timing of the move could be important. Monday marks the end of Q1 2014, what could be an important barrier for some on the buy-side constrained by the need to keep their quarter-end balance sheets looking clean. The markets have seen a relative volume halt in the approach to the end of the month, potentially fueled by fund managers sitting in a holding pattern until the calendar turns over to April. If any of these actors are waiting for the start of Q2 before acting on any value plays, it could bode well for Organovo investors.

Of course, it’s also just as possible that its current trading level is still correcting for the buyout rumors that drove it to previous highs and the stock will continue this decline, perhaps even picking up speed having now broken its previous support level. This would seem even more possible if one buys into the idea that health care stocks are currently in a bubble after a wild 2013 that saw biotechs making major gains.

Given the young segment and the relatively small size of the company, any predictions about future price movements likely aren’t of much value. And only time will tell if the bulls or the bears win out on Organovo in the long run.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions.


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By  +Follow March 27, 2014 5:35AM
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