This Drug Stock Could Keep Dropping

CELG's short interest shows there is no need to worry about a short squeeze

Mar 20, 2018 at 8:50 AM
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Shares of drugmaker Celgene Corporation (NASDAQ:CELG) have seriously struggled since October's record high above $147, last month breaching the $100 level -- a round-number mark that provided support throughout 2015 and 2016. Then, the Food and Drug Administration (FDA) rejected its multiple sclerosis drug, sending the stock spiraling to below $90. As such, CELG has trailed the S&P 500 Index (SPX) by roughly 20 percentage points over the past three months, and there's no reason to bet on a turnaround heading into its worst month of the year, with the equity losing almost 2% on average in April over the past three decades.

Monthly Chart of CELG Since Feb 17

It's not going to help if short sellers keep piling on, either. During the last two reporting periods alone, short interest increased 16.5%. And with just 2.1% of the float sold short, there's no need to worry about a short-squeeze situation.

Meanwhile, Celgene has received a number of bearish analyst notes in recent months, but the majority of those in coverage still have "strong buy" ratings in place. This leaves the stock at risk for additional downgrades.

CELG has been a good target over the past year for options traders, too, based on its Schaeffer's Volatility Scorecard (SVS) of 81 -- indicating a tendency to surpass volatility expectations. Lastly, our recommended put has a leverage ratio of negative 6.3, and will hit its profit target on a 13.3% decline in the underlying shares.

Subscribers to Schaeffer's Weekend Trader Series options recommendation service received this CELG commentary on Sunday night, along with a detailed options trade recommendation -- including complete entry and exit parameters. Learn more about why Weekend Trader is one of our most popular options trading services.
 

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