October has been a less-than-scary month for many of the companies at the heart of the opioid crisis. But the verdict on the longer-term price charts of Walgreens (NYSE:WBA) and Johnson & Johnson (NYSE:JNJ) should have bears breathing easier—and Teva Pharmaceuticals (NYSE:TEVA) bulls, possibly a sigh of relief in the weeks and months that follow. Let me explain.
There’s no denying the opioid crisis in the United States has been a sad time for many families. Worse, it should have been largely preventable if not for profiteering by companies willing to turn a blind eye as the problem turned into an epidemic. Still, investing from the heart or waiting on an elusive headline to make a decision is rarely a good idea. That goes for all investments, not just opioid stocks.
While uncertain legal maneuvering within the expanse of opioid stocks will remain in full swing for months if not years to come, there are positions readying for action backed by the price charts and the options markets in WBA, JNJ and TEVA stock to ensure healthier outcomes to investors.
Opioid Stock to Short: Walgreens (WBA)
Drugstore chain Walgreens is the first of our opioid stocks to short. Shares have enjoyed a bit of a boost in October, but are under modest pressure Wednesday following a bearish cut from an analyst at JPMorgan.
Technically, I’m looking at the monthly chart for going short WBA stock. Shares are forming an inside candlestick within a bear flag pattern formed around the 50% retracement level and under former price support dating back to mid-2018.
WBA Stock Strategy: Position short in WBA stock on a move below $51 as the bear flag is broken. To guard against increased headline risk, I’d propose the April $45 / $35 put spread for purchase as a way to gain exposure with limited and reduced risk.
Opioid Stock to Short: Johnson & Johnson (JNJ)
Johnson and Johnson is the second of our opioid stocks to short. The healthcare giant has been embroiled in a laundry list of health-related problems and lawsuits stemming from the use of trusted products like its baby powder, which has been found to contain asbestos. I suppose bears have that going for them as well.
On the price chart, JNJ stock has been showing bearishly-diverging indications a top in shares is forming since 2018. A look at this opioid stock’s monthly stochastics relative to the price action over this period is evidence enough to indict Johnson and Johnson.
JNJ Stock Strategy: As expressed in a very recent story on JNJ at InvestorPlace, I’m favoring the use of the March $115 / $100 put spread to design a stronger and ironclad risk profile for this opioid stock.
Opioid Stock to Buy: TEVA Stock
Israeli-based Teva Pharmaceuticals is the last of our opioid stocks. This stock is a buy though. Long before problems tied to today’s opioid crisis surfaced, Teva was already in trouble as an aggressive debt-based acquisition strategy and pricing missteps took shares spiraling lower to decade lows.
The case for owning TEVA stock at this time is a simple one. Shares of Teva recently signaled an oversold crossover while confirming a monthly pivot low. It’s not the first such incident during TEVA’s long decline. But from a contrarian perspective, that’s exactly the point as Israel’s former largest company has likely been given last rights by most on Wall Street.
TEVA Stock Strategy: To be clear, TEVA stock is definitely a speculative play and should be treated accordingly in the portfolio. But for monies allocated towards that end, buying the June $11 call looks interesting. The contract allows sufficient time for this opioid stock to clear both downtrend and lateral resistance lines and hopefully take on real intrinsic value with open-ended profit potential while keeping risk contained to about 10%.
Investment accounts under Christopher Tyler’s management do not currently own positions in securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits
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