Q2 STOCKS TO BUY

What To Make of These Overbought Biotechs

Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN), Celgene Corporation (NASDAQ:CELG), and ImmunoGen, Inc. (NASDAQ:IMGN) are among the biotechs in overbought territory

Jul 24, 2015 at 11:12 AM
facebook X logo linkedin


A couple months ago, Schaeffer's Senior Quantitative Analyst Rocky White examined a handful of technical indicators to determine which ones work best. His conclusion, based on the numbers, was that the 200-day moving average and the 14-day Relative Strength Indicator (RSI) have been the most predictive of future price action.

In that vein, we decided to take a look at stocks that have been lodged in overbought territory for at least four straight days -- that is, their RSI has been north of 70 -- and may be vulnerable to selling. A look at the table below -- which comes courtesy of White -- reveals a number of biotech stocks on the overbought list, including Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN), Celgene Corporation (NASDAQ:CELG), and ImmunoGen, Inc. (NASDAQ:IMGN).


150724overbought

As you can see above, ALXN has been in overbought territory for the past eight sessions, and currently boasts an RSI of 76. This is mostly the result of the stock's rapid upside move. Since its June 9 close, the shares have soared 28% to trade at $203.28 -- and yesterday notched a record high of $208.88.

With the company due to report earnings next Thursday morning, option traders have been upping the bearish ante. Specifically, over the last 10 weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators have bought to open 2.13 Alexion Pharmaceuticals, Inc. puts for every call -- a ratio that ranks just 3 percentage points from an annual high. In other words, traders have been initiating long puts over calls at a near-extreme rate recently, suggesting they'd welcome a pullback from the outperformer.

Meanwhile, CELG's RSI has been above 70 for six straight days, and currently checks in at 82. Perhaps this explains why -- even after yesterday's earnings beat that boosted the equity to an all-time peak of $140.72, and receiving no fewer than six price-target hikes overnight -- the stock is off 2.1% at $136.13. The momentum may simply be starting to ease after a rapid run-up, which included a massive mid-July bull gap on news of the firm's Receptos Inc (NASDAQ:RCPT) buyout agreement.

Option traders have been rushing to Celgene Corporation's bullish bandwagon. The stock's 10-day ISE/CBOE/PHLX call/put volume ratio checks in at 2.59 -- higher than four-fifths of similar readings recorded in the last 12 months. Analysts have been excited, as well, with 80% doling out "buy" or better ratings.

Finally, IMGN -- which has nearly tripled in value this year at $17.90, and recently touched an annual high -- is fresh off an eight-day streak on the overbought list. At last check, though, the stock's RSI has slipped below 70, at 67.

Option traders and short sellers alike are rolling the dice on a pullback. ImmunoGen, Inc.'s 10-day ISE/CBOE/PHLX put/call volume ratio of 0.47 sits just 9 percentage points from an annual peak. Plus, 13.7% of the stock's float is sold short, representing eight sessions' worth of trading, at typical daily volumes. IMGN will report earnings one week from today.
 
 

“Buy This Stock Now!” - Expert Who Called 11x On TSLA

He called a rare 11x on Tesla…

But now, thanks to Elon & Trump’s new alliance…

He says there’s a new opportunity that could be 1,000x BIGGER than Tesla – and it could completely revolutionize a $23 Trillion market.

It’s trading for less than $5 per share right now…

But it won’t be under the radar for long.

Discover The 1,000x Bigger Elon Opportunity Here

GRAND SLAM COUNTDOWN

 
 

Featured Articles from Trusted Partners:

👀Learn How Dividends Create Passive Income for Life
Receive $200 Off Motley Fool Epic. The Motley Fool Epic $299 discounted offer is based on $499/year list price. Introductory promotion for new members only. Take control of your money and your portfolio with Motley Fool Epic.

💵New Income System Could Pay You $4,243 Monthly
You could collect an average of $4,243 per month starting as early as next week with a new payout system for income investors. New registrations are being accepted for investors who want to be in a position to start with their first payout next week.

🚀Easy 92% Crypto Dividends (No Coins Required)
COIN stock doesn't pay a dividend... But there's actually a new way to collect a massive dividend that's indirectly based on the stock and offers a terrific monthly income (currently yielding nearly 92% on a forward basis).

🤝Free Advisor Match with Wiseradvisor.com
Don't leave your retirement to chance! Get matched with a trusted financial expert for FREE and make the most of your tax refund. Get started now.

⚠️Dennis Quaid's #1 Warning for Americans
Here's the thing: life doesn't come with guarantees. The economy shifts, markets stumble, and years of hard work could slip through your fingers like sand. But it doesn't have to be that way for you. So request a free copy of this Gold & Silver Guide that will arrive right to your doorstep when you act now.

 

 
 

Follow us on X, Follow us on Twitter