Despite the broader market rallying about 5% this week, more than a few names failed to participate in what some will call a bull market and what other’s still insist is a correction. I guess, it just happens to be a nice correction for those bulls that are long deltas. The fact is though, much of the muscle behind the market’s systematic daily push higher this week can be chalked up to bargain-hunting in capitalization heavy names of importance like Apple (AAPL) or Google (GOOG), rather than true technical leadership.
One large cap name of lesser index influence which sports more than its share of solid fundamentals and has failed to keep up with the Jones’ & Co, pardon the pun, but might be worth considering as a bullish position, is large cap biotech outfit Celgene (CELG).
Admittedly, sometimes relative weakness like Celgene’s of late, is a bad technical omen. However, sometimes that temporary weakness might be given the benefit of the doubt when it can be chalked up to some very solid-looking base building. That appears to be the situation in CELG and one whose shares are nearing key levels which could help engineer a nice size relative strength rally in the days and weeks ahead.
Figure 1: Celgene Weekly (CELG) Double Dose of Bull
Shown above is the weekly chart of Celgene. The larger encompassing view showcases a “W” or high level, bullish double bottom with a handle developing right now. It’s considered a first stage base and according to growth stock principles, makes for a stronger formation than a late stage pattern of the same build.
A slightly smaller but still significant cup-with-handle could also be interpreted as being present. However, as one-half of a W typically shows a cup or maybe V-shaped cup as part of its technical engineering, it’s really one or the other but not both.
On the other optimistic hand, our sometimes pal PS Elliott does like the daily chart and suggests that our interpreted handle consolidation is actually part of a EW4 buy set up with a recent EBOT signal. According to that analysis, CELG has a mid TAPP estimate of $65 by mid July.
With respect to what we’re seeing technically and Elliott’s view on CELG, one option for bulls in agreement, could be the out-of-the money October 65 call. Priced for about $1.45, the required move for a double in premium is shown at two key points in the contract’s life.
Our shorter-term annotation “#1 Double” shows that if Elliott is correct with its midpoint price projection, this call would more than double in value and still have plenty of time left on the calendar before theta would become a threatening issue. The required move also fits in nicely within the existing linear regression channel, as well being essentially a re-test of prior highs; which are thought to be two additional pluses.
The second annotation is the worst case scenario of what would be needed by expiration in order for this bull to see a contract double. While there are no guarantees or rec’s implied here, we are of the opinion that solid technicals and a well-thought strategy with options makes for a stronger genetically engineered bull.
Senior Staff Writer & Options Strategist
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The information offered here is based upon Christopher Tyler’s observations and strictly intended for educational purposes only, the use of which is the responsibility of the individual.