The Drug Stock Expected to Crush Short Sellers Today

TEVA stock was down almost 57% heading into today's trading

Dec 14, 2017 at 9:25 AM
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Teva Pharmaceutical Industries Ltd (NYSE:TEVA) is cleaning house following a disastrous 2017. The Israel-based generic drugmaker said it will cut its global workforce by 25% -- resulting in roughly 14,000 lost jobs -- and suspend its dividend payment on ordinary shares in an effort to cut costs by roughly $3 billion by the end of 2019. In reaction, TEVA stock is up 19.3% in electronic trading, set to pare a portion of its year-to-date deficit.

Based on last night's close at $15.70, TEVA shares were down 56.7% in 2017. The stock's rally off its Nov. 2 17-year low of $10.85 -- fueled in part by one analyst's optimism over the company's restructuring efforts -- stalled in the $16.80 region this week, a 23.6% Fibonacci retracement of the equity's July-to-November plunge. However, TEVA should easily clear this short-term technical hurdle, if today's pre-market move plays out.

Above here is the round $20 mark, a 38.2% retracement of the stock's recent selloff and home to a lofty accumulation of call open interest in both the December and January series. This could translate into an options-related ceiling for the shares, as the hedges related to these bets unwind ahead of expiration.

Nevertheless, there's plenty of sideline cash to help TEVA power through this potential resistance. While short interest retreated from a record high in the most recent reporting period, there are still 80.16 million shares sold short -- a healthy 8% of the stock's available float. A continued round of short covering could keep the wind at Teva Pharmaceutical's back.


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