Novavax (NASDAQ:NVAX) shares fell 10% Monday as traders took a day off from bidding momentum stocks to the moon. A double-digit smashing sounds significant but is actually commonplace for a volatile player like NVAX stock.
With an average true range (ATR) of $12.27, moves of Monday’s magnitude have become a regular occurrence.
So, if you came seeking a reason for yesterday’s whack, then you can depart with the knowledge that it was noise born of a broader shift out of high beta stocks.
Scan a list of Monday’s biggest losers, and you’ll discover the session’s theme. Profit-taking struck some of 2020’s biggest winners – the lion’s share of which fall under the “high-growth, momentum” banner.
We’re talking Palantir (NYSE:PLTR), Peloton (NASDAQ:PTON), Zoom (NASDAQ:ZM), Shopify (NYSE:SHOP), and the like.
Even if there was a distinct news catalyst behind Novavax’s weakness, the drop didn’t change anything about the stock’s technical posture. Allow me to explain.
A Closer Look at NVAX Stock
As a technician and self-diagnosed charting addict, I analyze and trade stocks through the lens of price. If it’s bullish, then I’m bullish. If it’s bearish, then I’m bearish.
When bad news strikes, but a stock’s price doesn’t budge, then I don’t care about the headline. Alternatively, if good news arrives but the stock tanks, I’m a seller – regardless of the news details.
One game I’ve found helpful when trading is using technical analysis to determine if a particular move (higher or lower) is simply noise or if it’s noteworthy. If I came into Monday bullish on Novavax stock and deemed the session’s 10% whack as noise, then I would hold fast to my optimism. On the other hand, if the decline were dubbed “noteworthy,” I would have departed the session much less bullish than before.
I consider a session noteworthy if it a) breaks a pivot high or low, b) is an abnormally wide-bodied bar or c) occurs on above-average volume.
In the case of NVAX stock, Monday did breach the previous day’s low, but it still closed within the trading range that the stock has been stuck in for the past month. Thus, we didn’t break any pivot lows or significant support zones.
As for whether or not it was an outsized session, we’ve already established the stock is moving at a range of over $12 on an average day. So Monday was hardly atypical. As for volume, well, yesterday saw 4.8 million shares change hands. It’s officially above-average, but barely.
In sum, the drop was mildly disconcerting, but not enough to require a major retooling of whatever your bias was ahead of the session.
Novavax Stock Chart
The stock’s trajectory has been heavily driven by the novel coronavirus and news surrounding the company’s progress in developing a vaccine to fight it. Nonetheless, I find its price action to be well-behaved.
Breakouts have resulted in follow-through, creating clean uptrends and downtrends. History suggests the best trades are those spurred by the stock mustering the strength (or weakness) to crack through pivotal resistance (or support) zones finally.
For now, I’d peg $133 as the next threshold ceiling and $107 as the floor. Until we breach either area, I see little reason to initiate new trades.
Of the two, I’d rather take a bullish trade on an upside break because of the longer-term uptrend that’s in place. The recently begun phase 3 clinical trial for its vaccine is also a potential upside catalyst assuming we see a positive outcome.
If you’re looking to bet here, I suggest using low-cost, fixed risk options strategies. That way, if we see a large adverse gap due to news from the company’s trial, you’re not looking at a huge loss. Here’s a strategy for bulls or bears to consider.
Bull Trade: On a break above $133, consider purchasing the March $150/$170 bull call spread.
Bear Trade: On a break below $107, purchase the March $100/$80 bear put spread.
The bid-ask spreads are wider than I’d like, so you must use limit orders to avoid a poor fill.
On the date of publication, Tyler Craig had LONG positions in PLTR.
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