Certain sectors of the market have seen some parabolic moves in their membership stocks — for instance, the Biotech castor. In this sector’s case, companies are seeing a bounce, in many cases, ahead of earnings as investors are taking the side that the worst for the sector is over. While we don’t disagree, we also acknowledge that these parabolic pre-earnings moves tend to calm down or reverse after the event.
Regeneron Pharmaceuticals Inc (NASDAQ:REGN), Biogen Inc (NASDAQ:BIIB) and Dun & Bradstreet Corp (NYSE:DNB) are among the parabolic stocks that look ready to cool their engines after some large bullish moves.
Regeneron Pharmaceuticals Inc (REGN)
Regeneron Pharmaceuticals has been getting a lot of media attention as their earnings announcement approaches, as expectations are that the company will show a profitable quarter, better than analysts’ expectations. The results are that the price of Regeneron shares has rallied nearly 20% over the last two weeks.
The rally has crested shares to the outside of their top Bollinger Band, which is an indication of one of two things. First, that the stock is likely to regress back to within a normal distribution trend for its stock prices, which means lower prices in the near future. The second option is that the stock is set to follow the new parabolic price trend.
In Regeneron’s case, the shares also see some resistance from trendlines, as the stock’s 200-day moving average rests just overhead. This is the first time that Regeneron shares have battled with their 200-day since slipping into a bear market last October. We’re likely to see technical traders back off of their buying until a clear break above this trendline happens.
The Regeneron chart is one that looks like a “buy the rumor the sell the news” situation, as traders may have gotten a little ahead of themselves on running the price higher, in which case we would expect to see prices that move back towards $400.
Biogen Inc (BIIB)
Biogen Inc shares jumped more than 9% in trading yesterday on M&A rumors. Reports that have followed, as late as this morning, appear to indicate that an acquisition by Allergan plc (AGN) is not likely to move forward, news which could spark a regression to the mean for the shares.
Biogen shares broke above their respective Bollinger Bands on Tuesday’s trading, an incident that we’ve witnessed two other times in the last six months. In the two previous cases, Biogen shares fell back within their normal share distribution trend as technical sellers jumped at the opportunity to sell for short-term profits.
Biogen shares had already been driven into a technically overbought signal after the rally that occurred in prices after a better-than-expected earnings report last week. The overbought condition will also be likely to add pressure to the shares as traders look to lock in gains on the shares as the biotech sector appears toppy.
For now, we expect to see the shares move back towards their normal prices in the range of $310
Dun & Bradstreet Corp (DNB)
Outside of the Biotech sector, professional services company Dun & Bradstreet Corp sees itself in a position that may spark some profit-taking over the short-term.
The company’s positive earnings surprise and outlook helped the shares almost 10% to its highs, pushing the stock beyond the top Bollinger Band, signaling that the stock has likely run its course for the short-term.
Unlike the biotech names, Dun & Bradstreet shares are likely to start trading in a tight range instead of seeing a sharp decline from traders taking their profits off of the table. This is for a few reasons. First, Dun & Bradstreet is in a less-volatile group of stocks. Second, the MACD indicator for the shares is still suggesting that the stock should have some momentum left to press shares higher.
In this case, the break of the top Bollinger Band appears to be signaling a situation where the mean will revert back to the stock by the shares trading in a tight range over the short- and intermediate-term outlooks.
This is a better situation where we would normally expect the shares to move back to the mean, which means significant selling pressure. Either way, there are likely better trading opportunities than Dun & Bradstreet Corp for the time being.
As of this writing, the Johnson Research Group did not hold a position in any of the aforementioned securities.