Take Profits on This Pharma Stock

The stock is trading near a trendline that's preceded weak price action in the past

Jan 3, 2019 at 2:01 PM
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The shares of Portola Pharmaceuticals Inc (NASDAQ:PTLA) surged more than 14% on Monday, after the Food and Drug Administration (FDA) approved commercial production for the clinical stage biotech's manufacturing process for Anexxa, a universal bleeding reversal drug. It could be time to take profits on PTLA stock, though, considering it rallied right up to a trendline that's had bearish implications in the past.

Specifically, the security is trading within one standard deviation of its 40-day moving average. In the last 13 times PTLA has risen to test resistance at this moving average after a lengthy stretch below it, the equity was down 11%, on average, one month out, with more than three-quarters of those returns negative, per data from Schaeffer's Senior Quantitative Analyst Rocky White.

Looking closer at the charts reveals a longer-term downtrend for the shares. After topping out at an annual high of $55.48 on Jan. 29, Portola Pharmaceuticals found its way down to $14.81 by Dec. 24 -- its lowest point since its first day of trading back on May, 22, 2013 -- amid pressure from its 40-day and 140-day trendlines. Today, PTLA shares are down 2.7% to trade at $18.27.

ptla daily stock chart jan 3

Against this backdrop, it's not surprising to see ample skepticism priced into the stock. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), PTLA's 10-day put/call volume ratio of 0.59 ranks in the 87th annual percentile, meaning puts have been bought to open relative to calls at a quicker-than-usual clip. Plus, Portola Pharmaceuticals stock is heavily shorted, with 34.4% of the float dedicated to these bearish bets.

However, analysts are upbeat toward PTLA, with 80% in coverage maintaining a "strong buy" rating, and not one "sell" on the books. Additionally, the average 12-month price target of $35.83 is nearly double the equity's current perch. Should the shares continue to struggle, a round of bearish brokerage notes could strengthen headwinds.

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