NEW YORK (TheStreet) -- Some of the selloffs in the market in recent months have been gut wrenching.
One selloff that has been particularly rapid is the decline in the shares of Illumina (ILMN - Get Report) , which has shed $105 in less than three months! There is an old saying about not trying to catch a falling knife, but it may be time to practice our knife skills.
In this weekly chart, above, we can see that ILMN broke two key support areas as it made its way lower. At the moment, ILMN is testing its 2014 lows.
The Relative Strength Index (RSI) (an overbought/oversold indicator) is at its lowest level since late 2011.
In this daily chart, above, the selloff looks more dramatic. Also the RSI readings are down at 20, a level considered by most chartists to be oversold even for a downtrend.
While an oversold market can get more oversold, these extreme readings suggest that at least a relief rally is possible.
In this last chart, above, we show the weekly candlestick chart of ILMN. While we haven't finished the week, the latest entry on this chart shows a possible "hammer" formation.
Hammers are bottom reversals. The candle displays a lower shadow or the extreme low. We still have to get through Friday, but the chart shows a rejection of the lows.
What should traders do with ILMN here? With very low oversold readings and a possible reversal pattern from the candle chart, we would at least cover shorts. If the hammer is confirmed and prices start higher next week, then aggressive traders could probe the long side.
Separately, TheStreet Ratings team rates ILLUMINA INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:
We rate ILLUMINA INC (ILMN) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures, notable return on equity, expanding profit margins and impressive record of earnings per share growth. We feel its strengths outweigh the fact that the company has had lackluster performance in the stock itself.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth came in higher than the industry average of 5.8%. Since the same quarter one year prior, revenues rose by 20.5%. Growth in the company's revenue appears to have helped boost the earnings per share.
- The debt-to-equity ratio is somewhat low, currently at 0.73, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Along with this, the company maintains a quick ratio of 2.59, which clearly demonstrates the ability to cover short-term cash needs.
- Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. When compared to other companies in the Life Sciences Tools & Services industry and the overall market, ILLUMINA INC's return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.
- The gross profit margin for ILLUMINA INC is currently very high, coming in at 75.47%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 18.95% is above that of the industry average.
- ILLUMINA INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, ILLUMINA INC increased its bottom line by earning $2.37 versus $0.86 in the prior year. This year, the market expects an improvement in earnings ($3.45 versus $2.37).
- You can view the full analysis from the report here: ILMN