Regeneron – The End of the Bull?

Regeneron, REGN, makes a compelling example of allure of biotech stocks for investors. After breaking out higher in 2009 from a multi-year base, it’s stock went on to post gains of more than 5000% in 5+ years, peaking in August of 2015. Since that time, it has declined almost 50%, something difficult for buy-and-hold investors to experience, unless they got in real early and are still positive on their positions (which only makes it slightly less difficult).

Notice how in 2015 the stock eventually fell below its rising 200 day moving average, bounced off of (green) support and made one more attempt to move higher. That next move higher failed and made a lower high and has now broken below the black uptrend support and once again fallen below (a now falling) 200 day moving average.  Price sits at the bottom of support and a continued probe lower and hold below will likely be the trigger that REGN’s uptrend is done (as in put a fork in it) and to expect much lower future prices. Take note and memorize what has occurred as this is a classic long term topping pattern that most all investments mirror when their bull run eventually ends.     

“Teck”nical Analysis

The chart of Teck Resources, TECK, is a great example of how one of the basic principles of technical analysis, support and resistance, works.  As you can see in TECK’s daily chart below, price attempted to break above the $25.5-$25.8 zone 4 times before it eventually broke out to the upside in December of last year. While it is referred to as resistance, it is really just referring to the fact that there is an abundance of shares available at the price that investors want to unload. Before prices can work higher, those shares need to be absorbed and be less than current demand.  The basics of TA are based upon simple supply and demand levels (like almost all markets).

Once price moves above the line it changes from resistance to support. Support is just another term used when speaking of demand. Notice how on the chart above price eventually broke above the resistance/support line, peaked, reversed course downward and then found support (demand) right at that same level where they originally broke out? This should not be a surprise as it is something that occurs regularly and why paying attention to these zones is critical. It is another great example of a back test of support. It also provides those that missed buying the original breakout another opportunity to get into the position. More importantly, investors in TECK now have an easy way to manage risk. If the stock fall should at a later date below this original resistance/support line, it would be your signal to exit the position. Not only does it make managing the position easier as it provides a framework and set of rules, it insures any loss because you are wrong, will be very small.

The fact TECK formed an inverse head and shoulders reversal pattern, has broken out and held above support suggests that if it plays out, the upside target is around $37, some 40% from the breakout level. With momentum in the bullish zone and price above a rising 200 day moving average, I find TECK a compelling investment opportunity. My only hesitation, a fundamental one that I must ignore, is if the upside target is to be met, oil prices will need to rise substantially from today’s levels. While this may occur, my read on the current oil market is that over-supply should be the problem for the near and foreseeable future.  As such, until demand picks up, prices should be well contained and may contain the rise in TECK.

Does Diversification Matter?

When markets are rising diversification can help investors from putting too much money in the wrong places. On the flip side, performance will always be just average and those who are able, can outperform.

But, unfortunately when it matters most, as markets decline in earnest, diversification fails. The chart below shows how correlated an in lock step the global markets are when in a steep decline. If you are looking for the solution to manage portfolio risk, diversification does little at the times it is needed most. As such, you better have a plan.

January 2018 Charts on the Move Video

January - in like a lion and out like a lamb. Volatility is back what's it mean for the markets in the short term? This and a look at parabolic blowoffs in this months Charts on the Move video which can be seen here

https://youtu.be/U8bZ_fex0rQ

Lightening II

Back on November 20 of last year I wrote about the possibility of lightening striking twice on ASND stock. The stock was setting up to break out of a cup and handle pattern right after reaching its upside target out of an inverse head and shoulders.  The cup and handle pattern pointed to a 15% upside move. Remember this chart?

As you can see in the chart below, It took 20 days of price grinding sideways before the buyers eventually overwhelmed the sellers and price climbed higher. Much higher. In fact it blew right past the pattern’s target and peaked ~48% above the close on the date of my blog post. 

As you would expect after such a big move in a short period of time and being massively overbought, the stock will need to digest its gains before we are likely to get a clue on what may lay ahead for ASND. The good new is that biotech is on a roll and I expect, once done consolidating, ASND may be ripe for another rip higher. If you took this trade, congratulations. Consider selling ½ and letting the rest run.