11/21/2016 – Celgene (CELG) and 3 Price Gaps
You could hear a collective sigh of relief across the nation on election morning from the biotechnology as they felt like they could breathe again. The sector has been crushed over the last year and a half by tweets from a presidential candidate. Celgene (CELG) investors were included in that bunch of stocks.
As soon as it was decided that Hillary was not going to be the next president, investors bid up the biotechnology sector that morning. The iShares Nasdaq Biotechnology Index Fund (IBB) had over an 8% gap-up election results morning. That gap-up move has been consolidating during the last week and is still holding all of that gain.
Considering the IBB has a wide swath of stocks, there is a good chance that your stock participated that morning with a gap-up on its chart. A less risky trade that I've witnessed several times now is buying the first gap-up in a new uptrend.
I've pointed this buying tip in several different articles now. Look at your favorite stock in the biotechnology sector and wait for a pullback to its gap-up area if it had one. That is the place to go long and start the scale-in process by purchasing some shares.
One of the stocks that helped the IBB index gap up on that morning was Celgene (CELG). This article is going to focus on Celgene (CELG) and its chart activity in particular.
Let's start by looking at a longer-term chart for Celgene (CELG). This is a 5 year monthly candlestick chart. After a long consolidation period of sideways action, Celgene (CELG) is developing a Bullish Engulfing candlestick pattern for the month of November. This candlestick could be an indication to purchase the next pullback.
Since the Bullish Engulfing candlestick pattern is developing after a long consolidation period, it seems to be indicating that its long consolidation is over. The share price is attempting to resume another uptrend.
Based on the monthly chart, any pullback in December to the $115 area is a buying opportunity to continue riding the new trend upwards. Over the last 6 months, Celgene (CELG) only pulled back into my preferred purchase zone 1 time. It just missed last month.
Also noteworthy - this month's candlestick is the largest candlestick on the chart. The sooner you can get in on the biotechnology sector blast-off, the better. The MACD Histogram still looks like it has several months of room to run too...
Let's review some shorter-term charts and see if they agree with the longer-term uptrend that appears to be starting. The shorter-term chart can also provide a better idea for a good entry point.
Let's look at a 1 year daily candlestick chart for Celgene (CELG). CELG developed a Golden Cross on August 22, 2016. After developing its Golden Cross moving average pattern, the first pullback below the 200 Day Moving Average presented an excellent opportunity to jump on the trend. That is a trading pattern you should write in your notebook.
After missing the initial uptrend, the best way to jump on the uptrend is to wait for the first pullback to or below the 20 Day moving average. Scale in with the first purchase at the 20 Day average and save cash for a break below the 20 Day average, possibly closer to the 50 Day average.
The 20 Day average should catch up with the $115 area and act as support in the event of a pullback in the next week or two.
Celgene (CELG) has 3 gap-ups in its uptrend so far. If you bought CELG's first gap-up in the uptrend, a trading technique that is advocated at Trendy Stock Charts, you would be sitting on 20 - 25% gains right now. But since I was not writing about the stock at the time, it probably fell off the radar of some.
Let's focus on getting in on a breakout that has been over a year in the making. Most times, there is a re-test of the breakout area. The breakout area for Celgene (CELG) is around the $115 mark. That will also be a re-test of the 3rd gap-up in the uptrend. If that gap-up fails, look for the next gap-up below for support and the next possible scale-in purchase. The next gap-up below is around the $104.50 area.
Celgene (CELG) - Beginning Diagonal Wave Pattern
From an Elliott wave perspective, Celgene could be forming the beginning of a larger wave pattern that could span the next two years. A Beginning Diagonal wave pattern is seen in Wave 1 of a larger Bullish Impulse wave pattern. The pullback to the $112 - $115 area is the Wave 2 in this larger Impulse wave.
At this point, trying to jump on CELG's uptrend carries additional risk of moving too far too fast. It is best to wait for the pullback or for a little more time to lapse with sideways movement.
If support is found though at the $112 - $115 area and bullish indicators are seen, it is time to jump on the uptrend. As I mentioned above, a Beginning Diagonal wave pattern is part of a larger wave pattern that is going much higher.
A Beginning Diagonal wave pattern is identified by a series of higher highs and higher lows. After Wave 5 finishes developing, the pullback area should be to the top of Wave 1. The top of Wave 1 is around $112.
Celgene (CELG) - Summary
If you are holding shares of Celgene currently, trim some shares between the $130 - $140 level during the next couple of weeks. Any repurchases or new purchases of CELG should then be made around the $112 - $115 area. That would represent a little more than a standard 10% pullback. That could be the core position in your holding. You would then look to scale-in with another purchase after a little time has lapsed or the move is confirmed by a rising share price on increasing volume.
The next pullback for CELG is the opportunity to go long its stock. For a sector that was shunned by investors for the last year and a half, it is sure feeling the love the last 2 weeks. Celgene (CELG) has certainly been a benefactor of investors optimism. But remember, there are plenty of other biotechnology stocks out there ready to soar too. So if you have any other names, drop them in the Idea Chamber! Let's all cash in on this sector! Celgene will get us started in the right direction.....