The bears won their second-straight session following another backtest to support on Tuesday. Historically, the back-end of March can be a little bearish, but the damage has been minimal. The first waves of stock market support levels are holding, but further weakness could lead to additional selling pressure.
The Dow fell 105 points, or 0.6%, to close at 18,011. The blue-chips were weak on the open but made a run to resistance at 18,200 intraday after testing 18,149. The late-day dive to 18,010 held stock market support levels at 18,000, but there is risk to 17,800 and the 50-day moving average on a close below this level.
The S&P 500 dipped 13 points, or 0.6%, to finish at 2,091. The index struggled to hold 2,100 on the open but managed to trade up to 2,107 ahead of Wall Street’s lunch break. The second-half fade and close at the session low held back-up support at 2,090. There is risk to 2,075 if this level fails to hold. Resistance is at 2,100-2,110.
The Nasdaq declined 16 points, or 0.3%, to end at 4,994. Tech came within 10 points of its multi-year high of 5,042 but struggled at resistance and closed below 5,000. There is additional help at 4,975, followed by 4,950, but a close below these levels would be bearish.
The Russell 2000 declined nearly 2 points, or 0.1%, to settle at 1,264. The small-caps nearly triggered another all-time high north of 1,268 but were choppy throughout the session. The good news is that support at 1,260-1,250 held solid following a pullback to 1,262 late in the day.
The S&P 500 Volatility Index ($VIX) traded down to 12.59 during the first half of the action but struggled to get below 12.50 for the third-straight session. The close above 13.50 was a little troublesome, as it keeps 15 in play.
I’m still focusing on bullish trades given that stock market support levels have held, but my timeframe for holding options has gotten tighter so that I’m in and out. We can also use pullbacks to initiate new stock holdings. I’ve got a small-cap pharma for you today that’s about $3 a share. Let me tell you why I’m trading it and why I recommended it to my Momentum Stocks Weekly members.
Rigel Pharmaceuticals (RIGL) has a partnership with Bristol-Myers Squibb (BMY), and the approval of lung cancer drug, Opdivo, was a big bonus. The possible approval of the drug wasn’t expected until June.
Obviously, Bristol-Myers is the better-known company but Rigel could be the better way to play the potential of a billion dollar drug.
The niche lung cancer treatment Opdivo is expected to compete in is a $3 billion a year drug market category.
Rigel also has a partnership with AstraZeneca (AZN) for the development of an asthma drug and recently received a “milestone” payment of nearly $6 million.
Rigel has five other drugs in development stages in their pipeline and forms “collaborations” with other companies to bring their drug to market. In other words, think of Rigel as the “brains” behind a drug while its partners do the legwork and heavy lifting.
The company business model is setup to earn money through layered royalties. Said another way, the better a drug does in sales, the bigger Rigel’s slice of that pie will be based on total revenue.
With quicker-than-expected approval for Opdivo, shares could make a run at $5+ in the near-term.
The slick talking pros say the biotech sector is overvalued and is forming tiny bubbles. While this may be true for the broader sector, an individual stock’s valuation is determined on a number of factors. The general statement of a biotech bubble is a little premature and is a cop-out to the ones who don’t read and research the sector.
Biotech stocks are valued more on their pipeline and potential drug sales. With that said, Rigel offers great risk/reward at current levels.
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