Shares of large-cap biotechnology stocks as a group and as represented by the iShares Nasdaq Biotechnology ETF (NASDAQ:IBB) rallied on Thursday as a broader risk-on feel came back to the world of U.S. equities. Among this group, beaten down Celgene Corporation (NASDAQ:CELG) for the first time in more than two months flashed a better-quality trading buy signal.
As regular readers of this column know, higher-volatility groups of stocks and in particular biotechnology in my eye are better traded using an ETF to represent the group thematically.
That however doesn’t mean one cannot take a little bit of a flyer for a potential extra boost in performance using a single name stock in the group.
That in essence is what today’s trade idea in CELG stock is all about.
While I continue to like biotechnology and the IBB ETF thematically, through a multi-month lens, I don’t so much like to a) buy them at the top end of their trading ranges and b) don’t like all stocks in this space at any price.
CELG Stock Charts
Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
Case in point, Celgene had an awful couple of weeks in the second half of October that quickly shaved about 30% off the stock price and pushed it to the lower end of its trading range. This is clearly visible on the multiyear weekly chart.
While a two-week drop like this isn’t exactly confidence -boosting to investors in the stock, the near to possibly intermediate term oversold readings can often time provide juicy trading opportunities. Note here that the weekly MACD reading at the bottom of the chart in October reached all-time lows.
Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day
On the daily chart, on top I plotted CELG stock and the bottom half the IBB ETF. As the IBB ETF on Thursday bounced and once again overcame its 200 day simple moving average, CELG too reacted positively and scored at least a marginal breakout of its multiweek sideways consolidation phase.
While CELG stock at this point still has plenty more to prove to investors that it can once again get back on the bull train, to me Thursday’s price action does warrant a try on the long side for a trade, for now. A reversal of the entirety of Thursday’s gains and thus a reversion back into the sideways consolidation phase would be a stop loss signal while on the upside a first profit target around the $110 mark makes sense.
— Serge Berger
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Source: Investor Place