AstraZeneca (NASDAQ:AZN) is the latest drug company to storm the headlines for its novel coronavirus vaccine. The U.K. just authorized emergency use of the shot, though it remains to be seen if the U.S. will follow suit. If the news has you itching to buy AZN stock, resist it. At least for now. The stock chart leaves much to be desired.
I’m not saying it won’t someday be a buy. But someday is sure not today. I’ll hasten to add I’m not a fan of buying stocks on the news alone. If you want to use a headline as a reason for further research to determine if the price action supports a purchase, then do so. Just don’t dive in and buy because you liked the news.
A long time ago, I learned that it’s the reaction to the news, not the news itself, that matters. And determining the reaction is all about following the price of the underlying stock. I like the concept because it centers your focus on what matters, on the singular variable that will make or lose you money — price. Viewed through that lens, you’ll begin to let the market tell you which headlines matter and which ones don’t.
Is AstraZeneca’s vaccine being greenlighted by the U.K. a good thing? It’s certainly a win for humankind, as are all the recent vaccines that have come to market. But is it going to be a big boost to the company’s bottom line? Apparently not. At least, not enough to make the Street want to scoop up shares of stock. So says the sluggish price reaction and current downtrend AZN finds itself stuck in.
Let’s take a closer look.
AZN Stock is Sinking
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I won’t dispute the longer-term upward march seen on the weekly time frame. AZN stock has enjoyed a relatively steady price increase over the past five years. At least, if you ignore the March debacle. But take a look at the past few months. The weekly trend has turned lower with multiple lower pivot highs and lows. We’re below both the 20-week and 50-week moving averages. And, well, that isn’t bullish.
I’m also concerned by the monster volume seen during the down gap three weeks ago. This isn’t some small, retail-driven exodus. It’s institutions smashing the sell button. While it doesn’t mean AZN will fall dramatically further from here, it does mean there’s a heap of overhead resistance that is going to make bullish trades far more difficult than necessary.
The recent rollover is easier to see on the daily chart. The downtrend has really been in place since August. There was a short burst of strength following November’s earnings report. It also coincided with the initial news of the Pfizer (NYSE:PFE) vaccine. But we’ve taken quite the tumble since.
Now prices are submerged beneath the 20-day, 50-day and 200-day moving averages. Worse yet, momentum increased on the last downswing showing sellers’ power is growing. We just saw a three-day rally resulting in another lower pivot high, and with the shares sinking nearly 2% on Thursday.
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Bet with Bears
No matter how you spin it, the technicals don’t support buying AZN. I wouldn’t even think about bullish ideas until we rise back above the 50-day moving average near $53.
That leaves us with two choices. Either avoid AstraZeneca stock altogether or bet with bears. I favor the former if for no other reason than bearish trades have been incredibly difficult given the broader market’s strength.
But if you’re intent on joining sellers here, then I suggest a bear put spread. The following strikes offer a balanced risk/reward.
The Trade: Buy the Feb $50/$47.50 bear put spread for $1.25.
On the date of publication, Tyler Craig held a LONG position in PFE.
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