Death cross. Just the sound of the technical analysis phenomenon sounds incredibly ominous. And to be sure, Barchart’s Death Cross indicator – one of the many screeners that Barchart readers have access to for free – warrants careful consideration. At the same time, for select enterprises, the warning signal may actually represent a contrarian opportunity.
First, let’s define what a death cross actually is. It’s a chart pattern that technical analysts watch for when a publicly traded asset’s short-term running price average (typically the 50-day moving average) slips beneath its longer-term average (usually the 200 DMA). Essentially, the theory is that the asset is transitioning from a bullish cycle to a bearish one.
On paper, this deduction makes logical sense. Similar to a baseball game, it’s difficult to gauge overall strengths and weaknesses over a single matchup. But throughout a long season? That’s when the law of averages starts coming into play. If you’re genuinely a solid organization, the cream tends to rise to the top. In contrast, flashes in the pan eventually sink.
Therefore, investors shouldn’t dismiss all death crosses as contrarian bullish indicators. At the same time, it’s also possible that some enterprises – through a series of misfortunes – just haven’t been able to generate momentum. If they do, circumstances can change dramatically.
To be sure, there are no guarantees here. But among the death cross candidates, here are two to consider:
iRhythm Technologies (IRTC)
Falling under the broad healthcare sector, iRhythm Technologies (IRTC) specifically operates in the medical devices field. Per its public profile, iRhythm bills itself as a digital healthcare firm. It focuses on the provision of ambulatory electrocardiograms, monitoring for patients at risk for arrhythmias. Since the start of the year, IRTC stock only gained about 3%. Further, recent trading has been weak, leading to the death cross signal.
Nevertheless, it’s also possible that iRhythm shares can quickly pop out of the hole they dug themselves into. For example, in the trailing month, shares gained nearly 19% of equity value. What’s more, this is a heavily backed enterprise, with IRTC stock enjoying a unanimous buy rating. This assessment breaks down as 11 Strong Buys and one Moderate Buy. It doesn’t get much better than that.
Also, the financials are quite compelling. Yes, the company isn’t profitable, incurring a net loss of nearly $130 million in the trailing 12 months (TTM). However, revenue in the period hit $513.17 million. For fiscal 2024, experts believe that iRhythm can post sales of $583.79 million, up 18.5% from the prior year.
Presently, IRTC stock trades at 6.25X trailing-year revenue. Between Q1 2023 to Q1 2024, the market supported an average sales multiple of 7.34X. This might be one of the death cross stocks to buy.
Arcellx (ACLX)
Another entity within the healthcare umbrella, Arcellx (ACLX) falls under the biotechnology sphere. According to its corporate profile, Arcellx is aiming to reimagine cell therapy through the development of innovative immunotherapies for patients with cancer and other incurable diseases. Due to the scourge that cancer imposes on society, Arcellex may benefit from a fundamentally powerful narrative. However, the market doesn’t quite see it that way.
Since the start of the year, ACLX stock slipped almost 4%. As a result, its 50 DMA just recently touched beneath its 200 DMA. Much of the pain resulted from a bout of significant volatility witnessed at the end of March and the beginning of April. Still, it’s possible that a recovery may be in play. Over the trailing month, ACLX gained 5.5% of market value.
It’s also worth mentioning that Arcellx features an 8% Weak Buy signal in Barchart’s Technical Opinion indicator. To be sure, it’s not the most encouraging of indicators but it’s better than a sell. Further, analysts also rate shares a unanimous buy rating, breaking down as 16 Strong Buys and one Moderate Buy.
Financially, Arcellx is not profitable, posting a net loss of $50.54 million in the TTM period. However, revenue stood at $131.66 million. For fiscal 2024, experts anticipate 8% growth in the top line to $119.18 million, with a high-side estimate of $216.65 million.
Currently, ACLX trades for 20.37X trailing-year sales. That seems high but the metric averaged 53X between Q2 2023 and Q1 2024. Thus, it makes a compelling case for death cross stocks to buy.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
