Bull Signal Flashing on Outperforming Vaccine Stock

NVAX may be ready to surge even higher, if past is precedent

Jul 28, 2020 at 12:06 PM
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With the COVID-19 pandemic forging on, pharmaceutical and biotechnology names have become a huge focus on not only Wall Street, but major news outlets as well, with companies jostling to produce an effective vaccine as soon as possible. In fact, this past week, Pfizer (PFE) and BioNTech (BNTX) made headlines after it was announced the U.S. will provide $1.95 billion to the pharma giant and its collaborator to help expedite production of a successful jointly-developed vaccine. Looking further back, on July 7, Novavax, Inc. (NASDAQ:NVAX) was also awarded funding from the U.S. government as part of “Operation Warp Speed” for vaccine production, specifically $1.6 billion to cover the testing and manufacturing of 100 million doses by 2021. The news has been a boon for Novavax stock, but its recent surge up the charts doesn’t look to have a top just yet, as a historic bull signal is now flashing.

Digging deeper into Novavax stock’s recent performance on the charts, the breakout over the course of even just the prior few months has been astounding. The most notable catapult higher came in early May, when the Coalition for Epidemic Preparedness Innovations (CEPI) said it will provide $588 million in funding for Novavax’s COVID-19 vaccine candidate. Not only did this result in an impressive 62.5% gap higher on May 12, but the equity bounced off the supportive 30-day moving average, and closed above its 1,000-day trendline for the first time in over three years. Now, the biotech is up nearly 70% for the month of July, and fresh off Monday’s multi-year peak of $151.20.


Per a study from Schaeffer's Senior Quantitative Analyst Rocky White, Novavax stock’s recent highs come amid historically low implied volatility (IV). White's data shows that there have been two other times in the past five years when the stock was trading within 2% of its 52-week high, while its Schaeffer's Volatility Index (SVI) sat in the 20th percentile of its annual range or lower. This is the case with NVAX's current SVI of 167%, which sits in the 19th percentile of its 12-month range. The equity saw positive one-month returns on both of these signals, averaging a return of 70%. From its Thursday close of $139.59, a surge of this magnitude would place NVAX above $237 for the first time since mid 2015.

Despite the equity’s recent run higher on the charts, short sellers have been piling on in droves. Specifically, short interest has surged 28.4% during the past two reporting periods, and now account for a hefty 40.5% of Novavax stock’s total available float. Should NVAX receive more vaccine-induced tailwinds in the coming months, shorts could be squeezed out of their bearish positions, which could send the shares even higher.

Subscribers to Bernie Schaeffer's Chart of the Week received this commentary on Sunday, July 26.


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