Celgene Corporation Stock: A Drop, Then a Pop
Biotech stock and healthcare stocks have been on considerable selling pressures of late, and much of it is stemming from the U.S. presidential election. Both candidates have pledged to crack down on price gouging, which would hurt the top and bottom lines of all the companies that make up this sector. This is why investments like Celgene Corporation (NASDAQ:CELG) stock have lagged compared to the general market, as the indices continue to make new all-time highs.
I do take fundamental valuation as a precursor, and I have heard many arguments that many of the names in this space provide value. These arguments have done little, as the prices continue to drop despite these attractive valuations. For this reason, my strategies are heavily weighted on technical analysis because this is the only timing tool I have ever found to be effective.
I am making the case that this sector overall, and Celgene stock in particular, both need a climax of selling to mark an end to this bearish trend. So far, the selling has been much of a slow bleed.
The following Celgene stock chart illustrates the constructive chart pattern that is now in play.
Chart courtesy of StockCharts.com
From July 2015–July 2016, CELG stock put in a descending triangle. On average, this pattern is interpreted in a bearish light based on the price action. Each and every time CELG stock approached support around $95.00, buyers appeared to support the price. Each subsequent rally ended at a lower high, as sellers are more willing to exit positions at a lower price. The eagerness of sellers to step in at a lower price is why this pattern has a bearish bias. On average, this triangle pattern breaks down, but that is not always the case. This descending triangle played out perfectly, with five points of contact before the pattern broke out in upward direction.
CELG stock has failed to follow through on the breakout, price has retraced, and the triangle is being tested. A sustained close below $95.00 on a weekly basis will have bearish implications. This would signal that the triangle is busted, and the bullish bias generated from this pattern would have been completely averted.
Broken bullish patterns are significant signals that are met with a significant amount of selling. The power from this signal is generated as the bullish camp has to quickly unwind their trades as the trend moves against them.
If this pattern does fail, the following Celgene stock chart illustrates the levels that traders will be watching.
Chart courtesy of StockCharts.com
The Celgene stock chart above illustrates the Fibonacci retracement numbers. These retracement numbers are a technical tool used by traders to identify where price support and resistance can be found. The most popular numbers eyed by traders are the 50% and 62% retracement levels. Depending on their trading strategies, traders will use these levels to enter or exit their respective trades. The theory surrounding these numbers is that after a stock completes its primary move, it will retrace it by approximately 50%-62% before resuming the primary trend.
If the primary move is based on the 2009 financial crisis low, then CELG stock has yet to complete the pullback based on this criterion. A break below $95.00 would open the door for this pullback to finally play out, and even though the price has dropped, the overall picture would still remain bullish in Celgene stock.
The blue box is what traders refer to as “trading into the box.” When shares fall into the box, it signals to traders that they should cover their short positions and start building a long position. This range may turn out to be a fruitful endeavor for those brave enough to assume a position, and CELG stock could quickly rebound after finding footing at these levels.
The Bottom Line on CELG Stock
I am currently neutral on Celgene stock, and my view stems from concerns regarding the sector as a whole. A drop below $95.00 would open the door to further selling, but this may prove to be a buying opportunity for those brave enough to assume a position in CELG stock after a sell-off.