Pullbacks to key trendlines have been bullish for the stocks in the past
It's been a pretty brutal October all around, with the S&P 500 staring at its worst monthly loss since 2010. However, a pair of healthcare stocks are flashing buy signals after their recent pullbacks -- and just ahead of earnings next week: Viking Therapeutics Inc (NASDAQ:VKTX) and Bausch Health Companies Inc (NYSE:BHC) (formerly Valeant Pharmaceuticals).
Viking's Short-Term Options Attractive Ahead of Earnings
VKTX stock rocketed to a record high of $24 in mid-September, after the company reported positive mid-stage data for its liver disease drug. Since then, the shares have surrendered more than 40%, and were last seen trading around $13.54.
However, the equity is now within one standard deviation of its 80-day moving average, after a lengthy stint north of the trendline. After three previous retreats of this kind, VKTX went on to average a one-month gain of 5.48%, per data from Schaeffer's Senior Quantitative Analyst Rocky White.
As alluded to earlier, Viking Therapeutics is set to report earnings on Wednesday, Nov. 7. The security moved higher the day after its last two earnings reports, and has averaged a one-day reaction of 6.5% over the last three quarters, regardless of direction.
Should VKTX once again jump after earnings, quite a few short sellers could kick rocks. Short interest increased by 89.5% in the past two reporting periods, and now accounts for nearly one-third of the equity's total available float. A short squeeze could help the shares bounce back.
Meanwhile, even with earnings on the horizon, the stock's short-term options are attractively priced. Specifically, the equity's Schaeffer's Volatility Index (SVI) of 133% is in just the 9th percentile of its annual range, suggesting near-term options are pricing in relatively low volatility expectations for Viking Therapeutics stock.
Pullbacks to 200-Day Have Been Bullish for BHC Stock
Bausch Health shares have been in a channel of higher highs and lows since mid-2017. After its most recent peak of $28.45 in early October, BHC stock has dropped roughly 20% to trade around $22.74.
What's more, the security is now within one standard deviation of its 200-day trendline, after a significant stretch above it. After the last three pullbacks of this kind, BHC went on to average a one-month gain of 8.16%.
Bausch Health will report third-quarter earnings on Tuesday, Nov. 6. The shares moved higher after the last two reports, and have averaged a one-day reaction of 12.9%, regardless of direction, over eight quarters.
Despite BHC's long-term uptrend, most analysts are skeptical, with eight of 13 maintaining "hold" or "strong sell" opinions. Likewise, short-term options traders are more put-heavy than usual. The equity's Schaeffer's put/call open interest ratio (SOIR) of 1.14 is higher than 91% of all other readings from the past year. Another positive earnings reaction could spark a round of upgrades or an exodus of option bears.
The good news for options buyers: Bausch stock hasn't had a problem making big moves. The stock's Schaeffer's Volatility Scorecard (SVS) sits at a lofty 96 out of 100, suggesting BHC has consistently exceeded the volatility expectations priced into its options over the past year.