This Drug Stock Could Be Flashing Buy

Recent pullbacks have marked buying opportunities for Intercept Pharmaceuticals stock

Jul 20, 2017 at 1:25 PM
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golden cross occurs when a short-term moving average (usually a 50-day) crosses above a longer-term moving average (typically a 200-day). This technical development is often considered to be a bullish sign, signaling an oncoming upswing for an equity or index. Among the stocks that recently enjoyed a golden cross are three drugmakers: Mylan N.V. (NASDAQ:MYL), Arena Pharmaceuticals, Inc. (NASDAQ:ARNA), and Intercept Pharmaceuticals Inc (NASDAQ:ICPT). Below, we'll take a look at the shares of MYL, ARNA, and ICPT, and outline which drug stock might be flashing "buy."

MYL Stock In a Channel of Lower Highs

MYL's 50-day and 200-day moving averages recently underwent a golden cross. However, Mylan stock has spent the past few months struggling beneath resistance in the round-number $40 region, and was last seen at $39.29, up 2.7% on the day thanks to upbeat data on the company's COPD drug. From a longer-term perspective, MYL shares have been in a channel of lower highs since a massive bear gap about two years ago. The trendline connecting these lower highs is headed for the $42 area, which could limit any upside momentum for MYL.

MYL chart

Arena Pharmaceuticals Stock Taking a Breather After Rally

Arena Pharmaceuticals stock also saw a bullish cross of its 50- and 200-day moving averages. That's no surprise, considering ARNA shares skyrocketed to an annual high of $27.86 earlier this month, thanks to upbeat data on Arena's heart-lung drug. The stock has since pulled back a bit, but could find support in the $20-$21 area -- where ARNA shares were trading before the bull gap, and an area of resistance in 2016. At last check, Arena stock was at $23.71, up 3% on the day.

ARNA stock chart


Options traders looking to play Arena stock in the short term can pick up contracts at a relative discount. The pharmaceutical issue's Schaeffer's Volatility Index (SVI) of 67% is higher than just 5% of all other readings from the past year, suggesting ARNA's near-term options are attractively priced, from a historical volatility perspective.

ICPT Stock Could Squeeze Shorts

Not only did Intercept Pharmaceuticals stock see a recent golden cross of its 50- and 200-day moving averages, but the shares also just sent up a historical "buy" signal. According to data from Schaeffer's Senior Quantitative Analyst Rocky White, ICPT stock just came within one standard deviation of its 40-day moving average. The past five times ICPT stock pulled back to this trendline, the equity rallied an average of 5.21% over the subsequent month, and was higher 75% of the time.

Since testing support near the century mark at the end of 2016, Intercept stock has rallied roughly 27%, and now stands at $128 -- up 2.3% on the day. Another 5.2% rally would place the shares around $134.66 -- though this region has capped ICPT stock's advances in 2017.

ICPT stock chart


While short interest on Intercept Pharmaceuticals has been edging lower in recent reporting periods, more than 31% of the stock's float remains dedicated to short interest. At ICPT stock's average daily trading volume, it would take nearly 13 sessions to buy back all of these bearish bets. Should short sellers continue to abandon ship, an extended short squeeze could help ICPT shares barrel past former speed bumps on the charts.
 

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