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Trade of the Day: Celgene Corporation Is a Catch-Up Play

CELG stock is an underdog looking to fight back

Shares of biotechnology company Celgene Corporation (NASDAQ:CELG) lifted by about 1.25% on Thursday  following the company’s latest earnings report. CELG stock continues to notably lag some of its peers in the biotechnology group, but this could soon change and thus set up for a juicy trade.

CELG Stock: Celgene Corporation Is a Catch-Up Play
Source: Shutterstock

Before looking at today’s trade idea, allow me to make it clear that in my mind, biotechnology stocks are best “traded” as a theme, i.e. by using the iShares Nasdaq Biotechnology ETF (NASDAQ:IBB) rather than the individual stock names. This is largely because biotechnology stocks can be volatile due to FDA pipelines, among other potential news traps.

This however does not mean one can’t try and buy an underdog stock within the group so long as the IBB itself is trending higher.

CELG Stock Charts

Click to Enlarge

To illustrate this point, on this first chart in the top half I plotted the IBB ETF and at the bottom half I divided CELG stock by the IBB ETF for a so-called ratio chart. While the IBB ETF is actually currently undergoing a breakout move, CELG stock in relative terms continues to lag.

My bet here is that this relative under-performance on the part of CELG stock will soon end and that a catch-up play could make sense.

Click to Enlarge

Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week

On the multiyear weekly chart of CELG stock itself, we see that after topping out in the summer of 2015, the stock slipped into a lengthy consolidation phase that is going on to this date.

In fact, as a result of some big selling pressure in October of 2017, the stock now once again trades near the very low end of this wide trading range.


Click to Enlarge

Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day

On the daily chart, we see that CELG stock over the past few months has struggled to come back to life following the October weakness. However, if and when the stock can get back on its feet, it has two well-defined upside price targets that are the upper ends of the down-gaps from October 2017 (blue boxes on the charts).

As a first trade, once CELG can clear above $110, a next upside target is at $117. One step at a time with this stock, but as long as broader biotechnology strength continues, this stock has a good chance of catching up in the not-too-distant future.

Check out Anthony Mirhaydari’s Daily Market Outlook for Jan. 26.

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