As I mentioned in yesterday’s article, I am going to focus on a stock that has recently hit new highs for this article. When it comes a stock hitting a 52-week high, I prefer to look for ones hitting a “NEW” high. To me, his would be a stock that hasn’t hit a new 52-week high in quite some time. In addition, and more importantly, I want the stock to have broken through a key area of resistance. This way I know that it wasn’t just any move higher, it was a key breakout. Another stock that fits that description would be that of Alexion Pharmaceuticals, Inc.
Alexion Pharmaceuticals, Inc. is a biopharmaceutical company engaged in the discovery, development and commercialization of therapeutic products aimed at treating patients with severe and life-threatening disease states, including those in the therapeutic areas of hematology, nephrology (including transplant rejection), neurology, ophthalmology and cancer. Alexion’s marketed product, Soliris, is a therapy approved for the treatment of patients with paroxysmal nocturnal hemoglobinuria.
Please take a look at the 1-year chart of ALXN (Alexion Pharmaceuticals, Inc.) below with my added notations:
ALXN had been trading sideways for the past 3-4 months. During that time, the stock created a $70 resistance (navy), while holding support at $62.50 (green). That $70 resistance meets my definition of a clear resistance level that would signify an important 52-week high breakout if ALXN could manage to break above it. Last week the stock finally broke through that $70 resistance. As expected, that old $70 resistance has become a new support (l. blue) over the last week or so.
The Tale of the Tape: While trading sideways for a couple of months, ALXN formed a key resistance level of $70, which was a 52-week high breakout when ALXN broke above it. This should signaled higher prices ahead for the stock. A long trade could be made on any pullbacks to the $70 level. If the stock should happen to break below $70, the next entry for a long trade would be at the previous $62.50 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