Shares of biotechnology company Biogen Idec Inc (BIIB) rallied a strong 5.8% on Wednesday, finishing a big two-day rally on the back of news that its Alzheimer’s drug showed promising results. From a technical perspective, BIIB stock has moved back to the upper end of a trading range that has been developing for much of 2014 — and at least from a multiweek perspective, Biogen looks like it should resolve higher.
Specifically, Biogen said that its drug BIIB037 has the effect of reducing beta amyloid levels in the brain, which is a key contributor to Alzheimer’s disease. With an aging baby boomer generation likely leading to an increase in potential Alzheimer’s cases, this news of potential help for patients was welcomed by investors.
Broadly speaking, after biotechs looked to be at risk of faltering lower this year, they instead built an important low in mid-October along with the broader market, and the group has pushed to fresh all-time highs since. BIIB stock still is trading within its 2014 trading range, but could become a catchup play.
BIIB Stock Charts
Looking at BIIB stock on the multiyear weekly chart, we see a stock that after a big run in 2013 finally exhausted itself on the upside with a final vertical rally in early 2014. The price action since then has been rangebound, and in the bigger sense can be marked as a healthy consolidation phase.
With the most recent two-day rally, the Relative Strength Index (RSI) at the bottom of the chart has also begun to curl up again, which barring any immediate bearish reversal is supportive of a continued push higher and a breakout of the 2014 trading range.
On the daily chart, we can see that the rally that ignited Tuesday came on a breakaway gap that quickly took the stock decidedly above its 50- and 200-day simple moving averages (yellow and red lines, respectively). Wednesday’s continuation rally also marginally broke the stock past the diagonal resistance line that stretches back to the March highs and more or less matched its August/September horizontal resistance line.
From an immediate-term momentum perspective, Biogen increasingly looks to be overbought, yet through the lens of a multiweek time horizon and possibly into year-end, BIIB stock could well be ripe for a better breakout move after a small pause.
Active traders and investors could use a break above the $350 area to get long BIIB stock for a move into the $380 area, or more tactical traders could wait for a multiday consolidation phase near current levels and then buy the stock on the next rally attempt, also eying the $380 area.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.
