Biotechnology stocks such as Celgene Corporation (NASDAQ:CELG) have shown a good amount of grit over the last month and a half or so, despite a number of headlines from politics to earnings statements leading to some pop and drop moves. As a result, many names like CELG stock are dancing on critical technical support areas, where active investors and traders can define their risk for a next trade.
Celgene is the third largest holding of the popular iShares Nasdaq Biotechnology Index (ETF) (NASDAQ:IBB), which is to say that any outsized moves in CELG stock or the IBB ETF will affect movements in one another. As obvious as this may seem, a surprising amount of professional and private investors that I speak to on a weekly basis often don’t pay much attention to this.
When Celgene reported earnings in July, the stock rallied notably, but a few weeks later, it had given it all back. Given the choppy start biotech stocks have experienced for most of 2016 thus far, this pop and drop move in CELG stock still has plenty of biotech traders that I speak with on edge. Traders are wondering what the next possible direction of this space is, and therein lies opportunity.
Biotechnology stocks from 2009 to 2015 were some of the best performers, and they were often a good indicator for the broader stock market’s risk-on/off toggle. While the IBB ETF corrected about 40% from its 2015 highs into the early 2016 lows, the space continues to offer good broader market risk appetite level signals.
CELG stock looked as through the multi-year weekly lens after its 2015 overshooting rally also corrected nicely and ever since the initial move lower in August of 2015, it has found well-defined technical support around the mid $90s. Any rallies since then have been met by selling and thus further testing of the aforementioned technical support line.
CELG Stock Charts
One simple moving average worth focusing on is the blue 100-week simple moving average, which after failing to hold as support in January of this year, has since acted as an area of resistance through a multi-weekly lens. It repeated this again in August.
From this perspective CELG stock, which is still making a series of lower highs, does look likely to re-test the mid $90s once again in coming weeks and months.
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However, looking at the daily chart of CELG stock reveals a somewhat different picture. We can see that the post-earnings rally in July and August broke the stock back above diagonal resistance and that the last few weeks have seen the stock re-visit this former line of resistance once again. The current juncture of CELG stock is thus likely important on both the longer-term and closer-up charts.
The $105 area is a so-called confluence support area that is currently made up of the following: the 50-, 100- and 200-day moving averages (yellow, blue and red lines, respectively), the former diagonal resistance line and some horizontal support, a 50% retracement of the entire rally off the June lows into the early-August highs.
If CELG stock can stage a meaningful bullish reversal on a weekly closing basis from here and close above $109, then this confluence support area could end up holding and allowing the stock to rise back toward its August highs. But if the stock falters below confluence support around $105 on a daily or weekly closing basis, then the downside likely opens up for a re-test of the $95 area, and will therefore satisfy the concerning look of the multi-year chart above.
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