The healthcare sector of the S&P 500 has rallied more than 11% over the past two months and thus showed both absolute as well as relative strength. Within this sector, biotechnology stocks have just started to wake up and shares of Celgene (NASDAQ:CELG) now look primed to rally. CELG stock is pressing tightly against a key moving average and a push above it could see more buyers come to play.
Before looking at the stock-specific trade idea, it is important to note that particularly when “playing” an industry segment of the stock market with higher than average positive correlation, that playing the trade as a theme with an ETF rather than a single-name stock is often not only safer but also allows for better risk adjusted returns.
As such, when looking at the trade idea in CELG stock below, keep in mind that a general bullish theme in biotechnology stocks (in this case) could arguably more safely be traded by using an industry ETF.
CELG Stock Charts
Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
Moving on to the single-stock trade idea, on the multiyear weekly chart we see that CELG stock has been in a sea of hurt over the past twelve month or so. After topping out at a fresh all-time high in September 2017, the stock fell off a cliff and ultimately in the spring of 2018 broke below its multiyear horizontal support line in the low to mid $90’s.
Over the past couple of months the stock has managed to claw back higher, but so far it is only getting back near this previous area of horizontal support … which now may or may not become technical resistance.
Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day
On the daily chart, we see that as a result of the recent rally CELG stock has managed to pierce back above its intermediate term moving averages. Currently the stock is trying its best to hurdle itself over the red 200-day moving average, while the 50- and 100-day moving averages have already begun to curl higher.
One could simply buy the stock here in the low $90s for a next upside target close to $97 and using any meaningful one-day bearish reversal as a stop loss signal.
Alternatively and a trade with much higher probability of steady success, one could look to sell out of the money put option spreads on CELG stock, simply making the bet that the stock won’t fall much from here. To learn all about this amazing income strategy I am holding a special webinar on Thursday for InvestorPlace readers. Register here.
Join Serge’s Free Webinar HERE — Generating Steady Income From The Stock Market
