Two recent, fast-changing market themes—on-again/off-again hopes of additional fiscal stimulus and US President Donald Trump's coronavirus diagnosis—have thrown markets into a tizzy.
Though the stimulus drama has yet to be resolved, the president was released from the hospital earlier this week and is back at the White House, talking up his 'miracle cure' as “a blessing from God.” The 'cure' he's been referring to is the result of a number of as-yet-unproven theraputics. including an antibody cocktail that drugmaker Regeneron Pharmaceuticals (NASDAQ:REGN) has been developing.
In a video released yesterday, Trump said he planned to make the drug free to anyone who needs it. Of course, he didn't address the fact that it hasn't yet received government approval, though Regeneron did announce Wednesday it had submitted a request to the Food and Drug Administration (FDA) for an emergency use authorization.
The president's focus on Regeneron sent its slumping stock, which closed yesterday at $591.69, into a rebound, boosting shares in afterhours trade by almost $21, or 3.5%.
So is the stock a buy? Over the longer term we can't know. But it could prove to be a good momentum trade in the shorter term.
If the stock opens later today at the current pre-market price of $623 at time of writing, it will have blown two consecutive bearish patterns—a H&S top and a bearish flag. And if no other sudden, crazy headlines about the drug hit the wires, it will have flipped direction, setting it up for a continued advance, with the next major resistance at the July 20 all-time high of $664.64.
This would provide room for another $40 run up, a gain of 6%.
Trading Strategies
Conservative traders would wait for a return to that high, followed by a pullback to join the continued uptrend.
Moderate traders would wait for a pullback to the broken flag before risking a long position.
Aggressive traders would enter a long now, provided they understand and accept the risks. Careful planning would limit risk while allowing gains to run. Here’s an example:
Trade Sample
- Entry: $623
- Stop-Loss: $613
- Loss: $10
- Target: $663
- Reward: $40
- Risk:Reward Ratio: 1:4
Author's Note: This is a trade sample, not the complete analysis. That’s in the body of the post. Even if the analysis is right, and we’re not saying it is, the trade might still fail. Your timing, budget and temperament will contribute to its success or failure. That’s why it’s imperative to keep your trading strategies consistent, to develop statistical results and to determine what works for you.