The fact that the world decided to shut itself down for months is proof that the fear of the novel coronavirus is real. These were drastic actions that had devastating economic effects on every person on the planet. As a result trading stocks like Novavax (NYSE:NVAX) becomes very emotional.
When feelings are mixed with stock trades we tend to make mistakes. Luckily we have charts to help us make proper decisions, especially on NVAX stock. It moves fast so there is not much room for error.
Avoid Chasing the Herd, Trust Your Instincts With NVAX Stock
Just over a month ago NVAX stock was falling into an abyss. On the last day of the correction, I noted that the buyers will defend the $80 per share level. That was exactly what happened because that day marked the bottom of that tizzy. A 50% rally followed that took it back to $125 per share.
The thesis behind this stock in general is binary. It all hinges on the outcome of its scientific efforts. If they fail to deliver the goods, then there’s no value in it and the stock is doomed. Investors are betting that Novavax will succeed and bring their medicines to market.
Rather than wait, I prefer trading around the obvious levels like in early September. As it was falling into $80 per share it was clearly an opportunity to buy. With similar logic on the upside, I see resistance near $130.
The good news is that the bears tried to retest the September lows and failed. Consequently, the bulls have been setting higher-lows since then. The interesting part is that the stock has also developed a lower-high trend and the two just met this week. This means that within hours there should be a big move in NVAX stock.
The tough part is figuring out in which direction. Since the overall equity markets are so bullish, I want to guess “up” rather than “down.” Furthermore, the iShares Nasdaq Biotechnology ETF (NASDAQ:IBB) charts is also bullish and looks ready to pop. If so then NVAX has tailwinds helping it.
Those long the stock are comfortable holding it into this tight battle. Taking new positions here carries coin flip odds. If management fails to deliver, investors will price out the hopium that’s in the stock already.
The Fundamentals Will Matter but Not Now
Current fundamentals are wonky to say the least. Its current stock has 85 years worth of sales built into it already. Even if they come to market with a vaccine, I doubt they would be free to profit from it. This is not a normal year and I bet that there will be governmental restrictions on profitability for all providers. Comparatively, it’s not a disaster (Moderna (NASDAQ:MRNA) is three times worse), but Novavax is definitely bloated. Compare it to, say, the Pfizer (NYSE:PFE) stock price that is only 4x sales and an inch away from a vaccine.
Beauty is in the eye of the beholder, especially when the entire thesis is based on hope. I know I’ve upset a few readers for even suggesting the possibility of failure. It is important to check emotions at the door because they often cause mistakes. They tend to override reason under pressure. I tend to be a hot-head and I am mindful of that. Else, I would get stuck in the wrong trades. Besides, Johnson & Johnson (NYSE:JNJ) this morning announced a setback in their vaccine efforts, so it happens.
It sounds like I am hating on the stock but I promise you that I am not. I’ve mostly traded it on the bullish side for years and well before the recent reverse stock split. My impression is that they have done a better job managing the stock price than the pipeline.
Nevertheless, year-to-date NVAX stock is up 2,900% and investors must respect this outstanding record. This is 74 times better than the red hot NASDAQ.
The Novavax Stock Opportunity
Earlier I noted that the price range is tightening. That’s a good thing for the bulls because they have strong conviction that the upside scenario outweighs the downside. And if for whatever reason NVAX stock goes above $127 per share it can trigger a 25% rally from there. Neither scenarios are set in stone. I am confident that the fans will fiercely defend $80 and $60 per share. Conversely, I know that going into $130 per share will be difficult for the bulls.
This is the year of the headlines like never before. On top of it, this is the industry that is prone to headlines under normal circumstances. Combine the two and we’ve got fireworks potential at any minute on any day of any year. Pfizer will likely be the first with news this month. The headline will levitate all boats, including NVAX stock. Hang on to your positions long or short because it’s going to be a bumpy ride soon.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Nicolas Chahine is the managing director of SellSpreads.com.