The Market Vectors Pharmaceutical ETF (PPH) has taken quite a hit in 2016 (-7.23%). Compared to the broader equity market SPDR S&P 500 ETF Trust (SPY), down marginally lower (-8.43%), many would argue that pharmaceutical stocks in general are viewed by investors in a more favorable light.
And on the surface, they would appear to be right.
But the pharmaceuticals industry is by no means an oasis or safe haven. Should investor confidence be rattled further, the last thing investors will want to do is take on additional risk going long on trades. Hence, the counter-argument here is that should market headwinds continue to pose a challenge for equities across the board, we should be prepared to take advantage of any bearish shifts in trend as soon as possible.
Playing the downside not only provides opportunity at a time when most will sit back and hope for a turnaround, but also serves to reduce exposure.
Aiming to take advantage of lower lows which confirm the bearish trend, we’ll dive a bit deeper into three plays, using Profit Scanner, that should be on any active trader’s radar to short.
Pharmaceutical Stocks to Short: Ionis Pharmaceuticals Inc (IONS)
Click to Enlarge In the accompanying chart, we have Ionis Pharmaceuticals (IONS), a company best known for its efforts in the discovery and development of antisense drugs to treat a range of diseases (cardiovascular, metabolic, neurological disorders and cancer). The system initially gave us a sell alert when the stock fell back into the downward channel (parallel diagonal lines) on a false breakout attempt.
But more recently you’ll see that a tightening zig-zagging pattern in red, known as a symmetrical triangle formation, ended with the stock making a potent move to the downside, eliminating the short-term bullish “relief rally” as the stock continues to push toward the lower end of the channel.
Using Profit Scanner, we know to keep an eye on support around $40.76 per share, then closer to $30 where the bottom of the channel can be found.
And with our next bearish pick, the situation looks equally as bleak …
Pharmaceutical Stocks to Short: Ironwood Pharmaceuticals, Inc. (IRWD)
Click to Enlarge Ironwood Pharmaceuticals (IRWD), which focuses on the development of products geared toward treating irritable bowel syndrome, constipation and gastrointestinal issues, has been under significant bearish pressure lately.
Below, we zero in on shares currently breaking down from a sideways consolidation period that has been forming going back to the summer of 2015. Again, we find simplicity in chaos using Profit Scanner as the shorter-term volatile price moves over the past few months (shown in red) form a continuation diamond bearish pattern.
In this case, the trend prior to consolidation is down — so we should expect that trend to continue.
Pharmaceutical Stocks to Short: Vertex Pharmaceuticals Incorporated (IRWD)
Click to Enlarge Lastly, we have Vertex Pharmaceuticals (VRTX), a biotech company that focuses on the development and commercialization of small molecule drugs to help treat serious diseases in specialty markets.
After an incredible run that saw shares climb from the low $60s up to about $150 per share, investors were bound to take profits off the table at the earliest indication of any problems associated with the general market or the company itself.
Additionally, those on the technical side have been well-aware for some time now that the gap in late May 2014 has yet to fill — and gaps almost always fill.
Profit Scanner tells us initial support can be found at $82.81 per share. But more importantly is the long-term “double top” event that the system discovered back on Jan. 13. While a bit lopsided drawn on the chart above, you can clearly see two major topping points marked in red. With lower lows in place, the system is calling for a target price range between $47 and $56 per share. If realized on the conservative end, investors going short can potentially walk away with gains up to 38.59% based on the $91.18 price for VRTX as of this report.
Profit Scanner powered by Recognia can help traders of all levels uncover these signals to determine the best timing to buy. Or use Profit Scanner’s technical insight to validate your own trading ideas. See how easy this powerful tool is to help you uncover hidden opportunities in the market.
