Pharma Pipeline Primed for Breakouts in All Sizes

• Posted by Greg Harmon
• on July 6th, 2011

Biotech and Pharmaceutical companies are often talked about as ‘lottery ticket’ plays because an FDA approval or a buy out by a larger player can have a substantial impact on a stock. Sometimes the pure price action sets up for a large move as well. An edge over playing the lottery. Three companies in this space, one small one medium and one large are setting up to break out or breakdown as they are pressing against resistance. Let’s take a look.

Ironwood Pharmaceuticals, ticker: $IRWD

Ironwood Pharmaceuticals, $IRWD, on the small side at just over $1.6 billion market cap, broke the previous resistance at 16.00 and is now testing the resistance at the high from April at 16.53. If it can get over 16.53 then it has a Measured Move (MM) target at 17.50 and then 18. However should it fall below 15.75 then it can be played lower to support at 15 followed by 14 before a big move down. The Relative Strength Index (RSI) is in bullish territory but pointing lower and the Moving Average Convergence Divergence (MACD) is flat giving no guidance. Wait for a break of the 15.75 – 16.53 channel to show you which way to play it.

Valeant Pharmaceuticals, ticker: $VRX

Valeant Pharmaceuticals, $VRX, a mid sized firm at about $16 billion market cap, is testing the top of an ascending triangle at 54 for the 5th time since April. If it can get over 54 then it has resistance at 55.12 from early April and a MM higher to 61. The RSI is trending higher and the MACD is increasing. Wait for the break of 54 to enter. If it fails and then breaks the triangle below 50 then there is some resistance at 48 and then a gap lower to 46 and 44 support.

Celgene, ticker: $CELG

Celgene, $CELG, at $28 billion market cap is the largest of the bunch. But it is also testing previous resistance at 61 for the 4th time since the beginning of May. The RSI has been moving sideways in bullish territory and the MACD is pretty flat. If it can move over 61 then it has a MM to 67 followed by a second MM to 72. This dinosaur may be slow to move so do not expect it to happen in a week. If it rejects at 61 and falls below 57.70 then it can be played to the short side with support lower at 56.2 first followed by 55 and 52.60.

It is your choice in the pharmaceutical space. You can play the lottery or use price action as your edge.

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