DELAFIELD, Wis. (Stockpickr) -- Anyone who has followed me for a long time knows that I have a keen eye for spotting biotech stocks that are setting up technically for monster moves higher.
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One of my most recent examples is IsoRay (ISR), which I highlighted in Feb. 19's "5 Stocks Poised to Skyrocket Higher" at around 70 cents per share. I mentioned in that piece that shares of ISR had recently formed a major bottoming chart pattern at around 66 cents to 67 cents per share. This stock was starting to bounce off those support levels and was moving within range of triggering a major breakout trade above a key downtrend line. That breakout triggered and ISR is now trading at over $1.50 a share, which represents a monster gain of over 100%.
Another small-cap biotech stock that I liked recently was BG Medicine (BGMD), which I featured in Feb. 24's "5 Biotech Stocks to Trade for Breakouts" at around $1.24 per share. I mentioned in that piece that shares of BGMD had been uptrending, with the stock consistently making higher lows and higher highs, which is bullish technical price action. This stock was starting to move within range of triggering a major breakout trade. That breakout came in spades on Tuesday after shares of BGMD soared over 30% and the stock hit an intraday high of $1.87 a share.
Yet another small-cap biotech stock that I was hot for recently was Skystar Bio Pharmaceuticals (SKBI), which I featured in Feb. 12's "5 Stocks Ready to Explode Higher" at around $4.60 per share. I mentioned in that piece that shares of Skystar Bio Pharmaceuticals had been uptrending strong prior to my piece and this stock was quickly moving within range of triggering a major breakout trade. That trade triggered, and SKBI recently hit a new 52-week high of $7 a share. That represents a monster move of over 50% from the time I liked the setup.
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As you can see, I have a pretty good eye for spotting the big movers in the biotech sector before they take off and explode. The next biotech stock that I believe is setting up for a monster move higher is Ariad Pharmaceuticals (ARIA), an oncology company focused on the discovery, development and commercialization of medicines for cancer patients.
Ariad Pharmaceuticals ran into some major problems last year when its lead leukemia drug Iclusig was pulled off the market. because it was found to cause severe blood clots and narrowing of blood vessels. The drug has now been returned to the marketplace with a longer warning label that maps out the risks involved with taking the drug. Since the drug has been put back on the market, some rumors have started to make the rounds that Ariad Pharmaceuticals could be a buyout target for Eli Lilly (LLY) or GlaxoSmithKline (GSK). Some of those rumors have suggested that ARIA could fetch as much s $20 a share.
Regardless of the rumors, I like to focus on the charts and right now shares of ARIA are starting to show signs technically that large move higher could be in the cards soon.
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If you consult the chart for ARIAD Pharmaceuticals, you'll notice that this stock recently formed a double top chart pattern at $9.22 to $9.13 a share. Following that top, shares of ARIA sold off and pulled back and briefly traded below its 50-day moving average. That trip below its 50-day didn't last long and shares of ARIA are now starting to spike higher and begin to move within range of triggering a major breakout trade.
What's important for traders to understand now from a technical standpoint is that ARIA have been trending range-bound for the last two months and change, with shares moving between $6 on the downside and $9.83 on the upside. A breakout with high volume above the upper end of its recent range should be the technical magic that sends shares of ARIA skyrocketing higher.
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Traders should now look for long-biased trades in ARIA as long as it's trending above some key near-term support levels at $7.35 to $6.70 a share and then once it breaks out above those key overhead resistance levels at $9.13 to $9.22 a share and then above $9.83 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 26.5 million shares. If that breakout triggers soon, then shares of ARIA will set up to re-fill some of its previous gap-down-day zone from last October near $19 a share. If ARIA gets into that gap with volume, then this stock could easily hit $13 to $16 a share.
One final technical note that I would like to point out with ARIA is that the stock has been making higher lows for the last three months for most of its pullbacks, besides the recent violation of $8.22 support. Even when ARIA hit $7.35 a share, that still formed a higher low on a longer-term timeframe. That shows that traders want this stock when it sells off, and now we just need to see confirmation of a high-volume breakout to give ARIA a chance to rip sharply higher. Keep this name on your trading radar because that move could be coming very soon.
-- Written by Roberto Pedone in Delafield, Wis.
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At the time of publication, author had no positions in stocks mentioned.
Roberto Pedone, based out of Delafield, Wis., is an independent trader who focuses on technical analysis for small- and large-cap stocks, options, futures, commodities and currencies. Roberto studied international business at the Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany. His work has appeared on financial outlets including
CNBC.com and Forbes.com. You can follow Pedone on Twitter at www.twitter.com/zerosum24 or @zerosum24.
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