Dampened stimulus hopes and second wave concerns have stocks sinking fast on Wall Street quickly. But could the tide be turning for a downtrodden Novavax (NASDAQ:NVAX)? Let’s look at current factors and the price chart to evaluate risk.
What a difference a day or two makes. Investors looked optimistic earlier this week. Since then, stimulus talks, Superman in the White House and a blind eye towards a rapidly rising number of Covid-19 cases in the U.S. and Europe have had people rethinking.
For the broad-based, large-cap S&P 500 the turn of events and investor sentiment are helping sink the index by nearly 1% intraday. The modest recalibration has also resulted in a weekly decline of 0.70% after climbing within 2% of the bellwether’s all-time-high struck in front of September’s correction.
Despite the successes of trillion-dollar influencers like Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN), wider markets have come under substantial pressure of late. Yet conditions may be improving for NVAX.
It’s been a rather quiet couple months for Novavax. That’s almost hard to say with a straight face. Shares are up a stunning 2,587% in 2020 supported by the biotech outfit’s promising coronavirus drug. But it’s relative. And the fact is since early August other Covid-19 stocks with promising vaccines and therapies to combat the virus have taken the spotlight.
Among the top candidates, the use of REGN-COV2 from Regeneron Pharmaceuticals (NASDAQ:RGEN) and Gilead Sciences’ (NASDAQ:GILD) Remdesivir by POTUS to combat the virus have received extra media attention. Still, NVAX remains one of a handful of companies making into late-stage testing. Now there may be more reasons to the bullish on Novavax.
On Tuesday Novavax said it would explore the possibility of combining its influenza vaccine candidate NanoFlu with its Covid-19 drug applicant NVX-CoV2373. That’s potentially good news for NVAX stock for two reasons.
First, given this year’s more concerning flu season, the announcement reflects the company’s pursuit to get NanoFlu approved and into the market. Secondly, a shared vaccine stands to be promising for use after the pandemic ends.
NVAX Stock Monthly Price Chart
Source: Charts by TradingView
To be clear, there’s still a lot of ‘ifs’ for Novavax getting anything to market. That’s the nature of biotech pipelines as potential drugs go through trials and regulatory hoops. Well, at least that’s as much insight my extremely limited scientific background can offer with any sort of confidence.
Technically, a corrective move since early August lopped just over 55% off Novavax stock’s market valuation at its weakest moment. But the bearish cycle now has our attention as a potential meaningful bottom capable of reigniting 2020’s prior bullish momentum.
So what exactly is so interesting about NVAX?
Specifically, a volatile monthly doji or decision candle developed in September which straddled and settled on a significant long-term resistance with peaks in 2003, 2006, 2009 and 2014. The monthly price action also found layered support from this year’s 50% and 62% retracement levels. Reasonably, as far as momentum is sensible or gains of 2,600% are fair, a move through September’s high could elicit a second wave of enthusiasm for NVAX stock.
I’m confident we’d all like to see Novavax succeed with a vaccine. As an investment which hopefully takes advantage of that achievement or possibly another breakthrough, I’d like a modest amount of price confirmation first. The use of ‘modest’ is of course relative and (gulp) requires a rally of around 15% before pulling the trigger.
Bottom-line, when and if that day arrives in NVAX shares I’d suggest investors set their sights on a January or April dated, ‘modestly’ out-of-the-money bull call spread. At the end of the day this type of strategy positions investors with a much stronger defense than owning shares can. And equally important, a well-positioned vertical sports a solid leveraged offense for unparalleled profits if Novavax can succeed in mounting a second wave in the weeks and months ahead.
No Stocks owned: On the date of publication, Chris Tyler did not hold, directly or indirectly, positions in any of the securities mentioned in this article.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. The information offered is based on his professional experience but strictly intended for educational purposes only. Any use of this information is 100% the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.