Shake and Bake an Elixir in Medicines Company

• Posted by Greg Harmon
• on September 9th, 2015

Medicines Company ($MDCO) had been a bit of a sleepy stock over the last 18 months, quite the opposite of the rest of the healthcare space. That was until August 26th. Maybe some phase I trial data from the following Sunday leaked? Well whatever the cause the stock started higher off of the 200 day SMA.

From there is found resistance at 42.50, just above the January 2014 high before the rounded bottom started. This type of quick move is one that traders often look to fade, meaning they take profits or even sell short. A pullback would establish a Handle to go along with the Cup. The momentum indicators had moved to overbought levels. The stock was outside of the Bollinger Bands®. A triple whammy.

But stock prices can still go up when they are overbought. And overbought can get more overbought. A Cup can just get bigger without a handle. And that is what is happening in Medicines Company. A bit of a Shake and Bake scenario. After a small bull flag the price of the stock is moving higher again Wednesday. How high can it go? The bull flag would measure higher to 51.70. And with short interest at almost 18%, a short covering squeeze cold get it there quickly.

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