Novavax (NASDAQ:NVAX) comes up in many of my debates with followers and fellow investors. Just yesterday, someone message me saying that “NVAX stock is ready to pop.” I don’t disagree that it has upside — the charts have a bullish stance to them. Pfizer (NYSE:PFE), Moderna (NASDAQ:MRNA) and AstraZeneca (NASDAQ:AZN) had their headlines of vaccines approvals. Maybe now it’s this one’s turn. My guess is that until it gets a headline, price can meander higher into a breakout (see chart).
I usually don’t trade for headlines but in this case it’s all that there is. Fundamentally, there’s no way to justify the current metrics based on the actual sales. Most of the NVAX stock price enthusiasm comes from expectations of future sales and profits. The onus is on management to actually deliver on its promises.
I learned over years to refrain from assuming anything. Therefore I continue to trade Novavax based on what is concrete, and that’s the price action.
For now I can ignore the fundamentals because they are a giant question mark. Therefore my remarks are most often based on technicals within the overall environment. To that, the stock market has never been higher and the bulls are in control.
Even on the day featuring a very risky inaugural event, the so-called fear gauge, or the CBOE volatility Index (VIX) fell 6%. There is absolutely no fear anywhere based on the action, yet the VIX is much higher than it should be. I contend that that this instrument is broken, much like the CPI cannot measure the true level of inflation.
There Is Upside Potential Available in Droves
The price action in NVAX favors the breakout potential. To trigger that, the buyers need to overcome the prior failures is near $136 per share.
Once that happens, they will deploy a bullish pattern and invite more buyers. The target of this could extend to the December high near $150.
The traders have been consistently buying dips and established a level of support below $120. Therein lies a consolidation zone that has developed over the past month. The stock rallied from $76 per share then stalled for the last month. This may seem bearish, but in fact this is how stocks usually build a new base for higher-highs.
This is a good time to remind everyone that NVAX stock is still speculative. If I take a position in it, I accept the risk that comes with it. Even though the expectations are that it will deliver a vaccine, we still don’t have a guarantee. And failure would lead to complete disaster in the stock price.
I’ve seen it happen in this stock specifically. I traded the breakouts in 2016 above $9 per share pre-split. And then, out of the blue, the stock collapsed to 70 cents ($14 post-split). Back then, the fan rhetoric was also that success was the likely outcome.
Remember that prior to the virus outbreak, the stock was in deep trouble. Management had to reverse-split it 20 times to avoid getting booted into the OTC markets. I know these notions will upset fans of NVAX stock, but putting blinders on is not a good idea on Wall Street.
I’m not condoning shorting it — that’s just as ridiculous as going all in.
The Odds Are in Favor of NVAX Stock Spike
The way I see it, Novavax is coiled for big move, but the direction is still not certain. The posture of the stock chart favors the bulls. Add to it that the entire stock market is bullish, and I lean towards a breakout versus the breakdown scenario.
If I’m long the stock, I’m comfortable being so for the next few weeks. I would avoid shorting it at this time, because I’d be fighting the trend and the proverbial tape. The upside potential is $150, which could extend to the prior high.
I can assure you that I am not a perma-bull — I’ve written bearish notes about this stock too. It is important to not let emotions get in the way of a good trade setup. The battle now is between the support below and the resistance above. The buyers have succeeded in setting a strong higher-low trend while hitting at a roof. Once they break through that, they will overshoot higher. Yes, there is resistance but that is also the opportunity. The zone near $112 per share is pivotal with many other layers of support below it. The buyers are comfortable and the sellers should be nervous.
Is there room for disappointment? Absolutely. NVAX stock is up 2,000% in 12 months. There is definitely room to fall on any hint of trouble. Staying 100% long is lunacy at this stage. I would at least be selling covered calls against my positions to build some sort of a safety net.
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.
