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Like shares of most biotech companies, Celgene (NASDAQ: CELG) stock has been in a downtrend since last July.
You may recall that the slide in biotech stocks started when the sector’s pricing policies came in to question after Martin Shkreli, a former hedge fund manager, raised the price of an HIV drug by 1,500%. All of the sudden, the way all biotech and pharmaceutical companies priced drugs came under scrutiny. The political rhetoric heated up and a number of companies have been subpoenaed to appear before Congress.
To my knowledge, Celgene has not been subpoenaed, but it could be a case of guilt by association.
In the past year Celgene stock has formed a very clear downtrend with as clean a trend line as you will find. The trend line connects five different highs if you count the recent move. During the downtrend we have seen the price of Celgene stock fall from a high above $140 to as low as $93.
There has also been a pattern in the stochastic readings as they have hit the overbought levels each time Celgene stock was hitting the trend line. We see this is the case again with the recent high.
Looking at the weekly chart, we see a loosely formed trend channel, but the bottom rail isn’t nearly as well-defined as the upper rail. We also see that Celgene stock could face a secondary layer of resistance in the form of its 52-week moving average. There is potential support in the $95 range, but if the stock breaks through that, the next layer of support is down in the $85 range.
Despite the slide in the stock’s price, investors and analysts have remained optimistic. The short interest ratio is only at 2.07 currently and that is after almost one million additional shares were sold short from mid-April to mid-May. Some 25 analysts cover Celgene stock and 20 of them rate the stock as a “buy,” four rate it as a “hold” and one rates it as a “sell.” Pretty bullish sentiment for a stock that has lost almost a quarter of its value since last July.
The fundamentals aren’t terrible on Celgene, but they aren’t that good either. Celgene’s quarterly earnings reports for the past year have been mostly flat or down with the exception of the most recent quarter.
I would look to short Celgene stock above the $105 mark and would target a move down to $95 at the very least with the ultimate target down near that $85 level I mentioned earlier. As far as a stop-loss point, I would use the 52-week moving average for that. I think even if the stock moves above the trend line, it could be a false breakout and the moving average gives you a little more room, but still keeps the loss to a minimum should the stock move up instead of down.
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