Looking for a stock to trade from the long side just before it comes out of a base? Read on to see what I think of Regeneron Pharmaceuticals (REGN) . REGN has made a fresh base pattern in recent weeks, and despite some price weakness this morning this could be the right time to buy with a sell stop not miles away.
In this one-year daily chart of REGN, above, you can see a sideways trading market, but let's look closer at the indicators in the last few months. The slow-to-react 200-day moving average line was in a downtrend for most of 2016, but its slope turned flat in November and prices are close to closing above it. Prices have crossed above and below the shorter 50-day moving average line, but REGN is currently above it.
The volume histogram right below the price chart is hard to read, but you probably can pick out some points in time where volume increases as prices rally, which is bullish. The On-Balance-Volume (OBV) line gives a different perspective on buying and selling. The OBV line could be graded neutral, but in truth the OBV line has made slightly higher lows the past year. An improving OBV line suggests that buyers have accumulated shares. In the bottom chart is the momentum indicator, and there is a slight bullish divergence in October/November.
In this weekly chart of REGN, above, we can see a double-top pattern back in 2015 followed by a significant decline into 2016. Taking a step back before looking at just 2016, we can see a sideways price pattern with dips to and under $350 being bought. Prices now are testing the flat 40-week moving average line.
The weekly OBV line shows some aggressive selling from late 2015, but the line recently has stabilized. Now look at the 12-week momentum study in the bottom panel. As REGN made equal lows around $325 the momentum indicator made much higher lows, giving us bullish divergence.
In this long-term Point and Figure chart of REGN, above, we can see a big consolidation pattern over the past year. The most recent column on this chart is a line of Os heading down, or a correction. Despite the recent dip there is another way of looking at the price action, which shows higher lows from the $328 entry.
Strategy: Usually I prefer to buy strength as opposed to buying weakness. You may pay a higher price to get long, but you gain the confidence of trading in the direction of the trend. For REGN I want to depart from my normal behavior. Prices are lower in the pre-market and I suggest buying now or after the opening as I anticipate that other market participants will do the same and prices are not poised to start a new leg to the downside.
Not convinced? OK, buy strength above $390. A close below $345 is my line in the sand, so to speak.
