As the broader market rallied on Tuesday on the back of hopeful rhetoric around tax reform, the healthcare sector happily participated. The biotechnology subgroup of stocks also flocked higher, leaving plenty of so-called “bullish reversals” behind on the daily chart. Specifically, shares of Celgene Corporation (NASDAQ:CELG) bounced off a critical technical support level and now offer traders and active investors alike a well-defined reward-to-risk trade to the upside.
Source: Wikimedia (Modified)
So you know, the broader large-cap biotech space as represented by the iShares Nasdaq Biotechnology Index (ETF) (NASDAQ:IBB) despite the recent multiweek slump remains higher by around 17% for the year. From a trend perspective, the IBB and thus many large cap biotech firms including CELG stock remain both long-term and medium-term bullish. In the near-term, thanks to Tuesday’s rally, many of these stocks have moved from near-term bearish to near-term neutral … but not yet bullish.
CELG Stock Charts
Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
On the multiyear chart, we see that CELG stock remains trending higher but in recent months has struggled to overcome its previous all-time highs from July 2015. Through the lens of technical and investor psychology, this makes sense, as previous all-time highs take time to be broken above.
In other words, what I am looking for in CELG stock in coming weeks or months is a strong bullish reversal on a weekly closing basis, possibly followed by another week of follow-through buying to confirm that the stock may be ready for a renewed leg higher to new all-time highs.
Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day
Moving on to the daily chart, we note that the roughly 8% pullback in CELG stock from its July highs earlier this week brought it into a technical confluence area of support. This area is made up of the blue 100-day simple moving average as well as simple horizontal support (previous resistance until this past June).
In other words, the recent multiweek pullback could be looked at as a re-test of a previous technical area of resistance, which through the lens of textbook technical analysis is a constructive move.
Tuesday’s rally left behind on the daily chart of CELG stock one of my proprietary B2 Reversal Buy Signals. This is a powerful buy signal and for those unfamiliar with these strong bullish reversals, I will be holding a special webinar Aug. 30 for InvestorPlace readers on how to find high probability trade setups using these powerful moves. Register HERE.
The B2 bullish reversal from Aug. 22 now allows market participants to take a stab on the long side of CELG stock around the $130 level, using a well-defined stop loss around $126 on a daily closing basis and a first upside target near $136.
As a reminder, we do currently still find ourselves in a choppy August market environment, which is to say that trades need to be sized right (i.e. small to moderate).
Check out Anthony Mirhaydari’s Daily Market Outlook for Aug. 23.
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