Believe it or not, there are still stocks in this market that are maintaining current trends higher. Some are actually at or hitting new 52-week highs. When it comes to trading a stock hitting a 52-week high, I prefer stocks hitting a “NEW” high. To me, this would be a stock that hasn’t hit a new 52-week high in quite some time, or at least has a key area of resistance to break through. One such stock that may fit that description would be that of Pharmasset, Inc.
Pharmasset, Inc. is a clinical-stage pharmaceutical company focused on discovering, developing, and commercializing novel drugs to treat viral infections. The company focuses on the development of nucleoside/tide analogs as oral therapeutics for the treatment of chronic hepatitis C virus (HCV) infection. Nucleoside/tide analogs are a class of compounds, which act as alternative substrates for the viral polymerase, thus inhibiting viral replication. Pharmasset has three clinical-stage product candidates. It also has a series of preclinical candidates in preparation for clinical development.
To review Pharmasset’s stock, please take a look at the 1-year chart of VRUS (Pharmasset, Inc.) below with my added notations:
As you can see, VRUS has been trending higher during the entire 1-year timeframe. After trading sideways between $50 and the $70 resistance (green) for a couple months, the uptrend continued higher and the stock seems to have run into resistance at $80 (red), while being supported by $75 (blue). Although short in duration, that $80 level does seem to be a resistance that would signify an important 52-week high breakout if VRUS could manage to break above it. From there, the stock should be heading higher in its uptrend.
The Tale of the Tape: After breaking out of a sideways move between $50 and $70, VRUS has formed a short-term resistance level of $80, which would be a 52-week high breakout if VRUS can above it. That breakout should signal higher prices ahead for the stock. A long trade could be entered on a break above $80, or on a pullback down to the $75 level with a stop below the level of entry. If the market were to sell-off substantially, and bring VRUS back down to $70, a long position could also be entered with a stop below that level.
Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.
No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade. Capital preservation is always key!
Christian Tharp, CMT