Shares of COVID vaccine developer Moderna (NASDAQ:MRNA) are down almost 75% from their August 2021 all-time high when the stock was trading close to the $500 level. Objectively, that makes no sense since the pandemic isn't over just yet.
New cases are rising in the US for example, and in China, the case count keeps breaking new domestic records. Plus, Cambridge, Massachusetts-based Moderna forecasts about $20 billion in sales this year.
If the above fundamentals are so good, why might the stock be heading lower? Consider the fact that investors are generally forward-looking, then take into account the broader picture by not just looking at MRNA's decline following the spike.
Note the incredible rise the stock enjoyed prior to its plunge. Shares catapulted an incomprehensible 477% higher between their March 2020 bottom and the Aug. 10, 2021, all-time high.
That signals that investors weren't buying the stock for its immediate value at the time, but rather for its perceived future worth. In other words, they bought the rumor and sold the news.
Now, the market is pricing in Moderna's current value. Though we expect the stock to rebound eventually, we believe it still has further to fall first.
MRNA has been developing an H&S continuation pattern which will be complete only when sellers stop unloading the equity. That will drown out the demand at lower prices since, if investors want to keep selling, they'll have to lower their offers till they find buyers willing to assume the risk of ownership at lower levels.
If the price breaks the support of the neckline, we predict it will create a kind of suction, triggering short positions and stopping out longs. The pattern's height is almost $33, and we expect the same move below the neckline, testing the $100 critical level. If this is successful, the price should fall at least to $90.
Trading Strategies
Conservative traders should wait for the pattern to complete, with a fall to $118 over three days—preferably to include a Friday close—with the price remaining below the neckline, before risking a short position.
Moderate trades could also wait for the downside breakout below $120, but for two days in which the price remains below the neckline.
Aggressive traders could enter a long contrarian position, counting on the neckline support for a quick bounce, before joining the rest of the market with a short.
Here's are generic examples :
Trade Sample 1 – Aggressive Long
- Entry: $120
- Stop-Loss: $119
- Risk: $1
- Target: $130
- Reward: $10
- Risk-Reward Ratio: 1:10
Trade Sample 2 – Short Position
- Entry: $122 (After closing below $120)
- Stop-Loss: $125
- Risk: $3
- Target: $92
- Reward: $30
- Risk-Reward Ratio: 1:10
Author's Note: We are not in the business of fortune-telling or offering a get-rich-quick scheme. Trading is a business like any other because it takes time to build the skills. As well, the art of trading is "luck management." Consistent trading according to a sound strategy that incorporates your temperament, timing and budget will improve your odds of lining up with the statistical returns according to the technical analysis in this post. Until you learn how to develop a tailor-made trading plan, use ours for practice, though not necessarily for profit. Otherwise it's guaranteed you'll end up with neither skills nor profit—and there's no money back. Happy trading!