Shares of biotechnology company Regeneron Pharmaceuticals Inc (REGN) rallied 3% on Tuesday as the broader biotechnology space pushed to fresh all-time highs. Momentum traders and trend followers continue to be rewarded on the long side in biotechnology, but selectivity looks to be increasing.
More active traders and investors should benefit from focusing on only those stocks exhibiting well-defined risk and reward while also being aware of the earnings dates ahead in coming weeks.
On the news front, Regeneron on Jan. 9 announced progress in its cholesterol drug, alirocumab. Following this, Goldman Sachs increased its price target for REGN stock from $480 to $486. A few days prior, Morgan Stanley upgraded Regeneron to an “overweight” rating. For now, any surprise drug updates aside, the next focal point for investors will be Regeneron’s earnings scheduled for Feb. 10.
The multiyear gains in the iShares Nasdaq Biotechnology Index (ETF) (IBB) continue to add up impressively. On Tuesday, the ETF rallied another 1.7%, closing at new all-time highs. Since August 2011, the ETF has gained about 290%.
REGN Stock Charts
Shares of Regeneron are continuing to tack onto their 700%-plus gains since December 2011. From a technical perspective, the price action in REGN stock — particularly since spring 2013 — has largely taken place in a well-defined upsloping channel.
Last October, after reaching the lower end of this channel, the stock bounced sharply and by late November had worked its way back to the upper end of the channel. Ever since then, REGN has been in a consolidation phase near the upper end of this multiyear trading range, which is the first time it has done so. While a sustainable break out of this channel to the upside is unlikely from a multimonth perspective, an overshooting above the channel is a possibility in the near-term.
On the daily chart, we see that the sizable up-gap on Oct. 17 managed to hurdle REGN stock past its September highs and paved the way for another leg higher into early December. The consolidation since early December has taken the shape of a triangle-like pattern with a well-defined area of support near $395 on a daily closing basis.
Also note that the mid-October lows coincided with a bounce off the rising 100-day simple moving average (blue line). This moving average has in the meantime almost caught back up with price, which is to say that REGN has in essence worked off some of its overbought readings.
After Tuesday’s rally, REGN stock ended right back up at the diagonal resistance line that has formed since the early December top. Very simply, active investors and traders could now consider buying REGN stock around $420 for a potential follow-through move toward $440-$450. Support is clearly defined at $395. Given the uncertainty that comes with earnings announcements, traders might want to be back out of this trade, at the latest, the day before Regeneron announces earnings on Feb. 10.
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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.
