The novel coronavirus crisis is first and foremost a human tragedy, but it also created quite the global mess. Luckily, our scientists are working hard at solving the coronavirus riddles and finding a vaccine. Meanwhile, Moderna (NASDAQ:MRNA) stock is among those that sprung into the limelight.
As a result, MRNA rallied more than 130% from mid-February and that is par for the course in this sector. The speculation is that it will be one of the companies that will bring the Covid-19 vaccine.
Management is making progress and it expects to have Phase 3 trials this fall. The vaccine process usually takes many years but the whole world is working hard to break records on this one.
While progress is good, its success is not certain, so MRNA stock has a lot of optimism built in. Evidence of this comes from its relative performance to prior highs.
Johnson & Johnson (NYSE:JNJ) is another company working on a vaccine yet its stock remains below the February highs. Same for Gilead (NASDAQ:GILD), which made news this week on its own Phase 3 trials. This makes it hard to get long MRNA at these levels with strong conviction.
Small hiccups with the trials will cause very sharp corrections. The stock bulls must stay up to date with all the research and studies. In this case, there is no escaping the homework. I admit that I am not an expert, although I do feel like I earned an honorary degree in virology. Therefore I must stick to the technicals and the charts to guide my opinion on the price action for the next few months.
MRNA Stock is Primed for a Move
In the higher time frame, MRNA stock is split into three sections. There is a clear breakout ledge at $36 per share, which would be a solid place to buy the dip if or when it comes. The next level of contention is around $43 and that’s where the bulls and bears will also likely fight it out.
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In the shorter term, the stock price range has tightened up into a point. It went from trading between $43 and $56 down to within just $1 near $48 per share.
When this happens, there is a lot of energy in the stock and it has to let loose. There is a move coming but the direction of the breakout is undetermined. Those who want to short the stock can chase the breakdown from $46, because it would then shoot for the $43 pivot level that we just mentioned. Conversely, the bulls can chase the break out above $50 per share and perhaps meet or beat the highs.
Headlines play a big part in this sector especially for a company that is expected to produce a Covid-19 deliverable. Such binary stocks are difficult to trade with conviction because headlines have two opposing cutting edges.
While we can’t tell which way it will go, once the stock commits to a direction we can be confident finding the proper target levels, It’s best to wait for the trigger before chasing the trade. Otherwise traders are committing early and hoping it goes their way, and that would be more gambling than investing.
Support Makes for Better Entry Points
In my experience, jumping the gun long works much better for investments not for trades. And in this case, as I noted earlier, it’s hard to argue for a long-term investment in MRNA stock at these altitudes and without a dip.
I would be more comfortable owning the shares for the long-term closer to the lower tiers noted earlier.
I bring your attention to the earnings candle from Feb. 27. There was a reason why the stock failed exactly at $36 per share. This happened again two times before it finally broke out of it two weeks ago. Clearly, Wall Street likes that level for one reason or another so the closer I get to it for an entry point the more comfortable I am with the investment thesis.
This is nothing against the company. My judgment is purely based on the chart. Management will soon have the chance to update Wall Street during the earnings event which adds another layer of uncertainty on one event.
Case in point: Pfizer (NYSE:PFE) reported OK earnings this week and the stock fell on the headline because the stock was near difficult levels from prior failures. MRNA has a similar situation but from more recent highs.
Nicolas Chahine is the managing director of SellSpreads.com. Join his live chat room for free here. As of this writing, he did not hold a position in any of the aforementioned securities.
