Signal Says Red-Hot Biotech Stock Has Room to Run

ARWR options are attractively priced at the moment

by Patrick Martin

Published on Aug 2, 2019 at 12:26 PM
Updated on Jun 24, 2020 at 10:16 AM

A big biotech winner lately has been Arrowhead Pharmaceuticals Inc (NASDAQ:ARWR), which recently outperformed the broad market sell-off yesterday. ARWR nabbed an 11-year high of $30.73 on July 22, but a signal is sounding that indicates more multi-year highs could be in store, if history is any indicator. 

Implied volatilies on the equity are at historically low levels, per ARWR's Schaeffer's Volatility Index (SVI) of 63%, which registers in the 17th percentile of its annual range. According to Schaeffer's Senior Quantitative Analyst Rocky White, in the six other times in the past five years the equity has been trading near a 52-week high while its SVI ranked in the 20th annual percentile or lower, resulting in an average one-month gain of 7.2%.

At last check, Arrowhead stock was down 1.2% to trade at $28.89, on track for its first weekly loss since June. But a move higher of similar proportion would put it closing above $30 for the first time since early 2008. ARWR has already more than doubled in 2019, with a pullback in July contained by its 40-day moving average.

Daily Stock Chart ARWR

A short squeeze could also keep the wind at the security's back. Short interest swelled by 6.9% in the two most recent reporting periods, and now accounts for one-quarter of ARWR's total available float. At the stock's average pace of trading, it would take more than nine days for shorts to buy back their bearish bets.



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