Diversification can come in several forms. I like to see it not only in my long-term portfolio and trading, but also on my watch list and setups. For instance, BioMarin Pharmaceuticals (BMRN) and Goldcorp (GG) have nothing in common. One is a biotech and the other a gold miner. One may zig while the other zags, and vice versa. There is no rhyme or reason when it comes to the relationship of their moves, yet both stocks are presenting very similar trades right now.
BMRN had been a darling of the momentum world for a while. Since momentum has left the biotech area, we've seen the stock fall from the mid-$80s to the mid-$50s in less than three months. Since hitting a low in April, which has been tested several times, BMRN has made a series of lower highs. This has formed a very clear descending triangle. While descending triangles often resolve in a continuation pattern (i.e., a break of the horizontal support line), we know this isn't always the case. What it does set up is the possibility of a good size. Given this is a momentum type of name, I believe the resolution may come with a little extra push on the move. For instance, a move below $55 should quickly set a $4 handle, whereas a move above resistance should bring momentum buyers back.
This consolidation pattern is somewhat similar to the channel formed in late 2013 and early 2014. The result was a quick push to $74, which dropped back to $64, which then roared to $84 -- all within two months. As such, the July $55 put/$60 call strangles looks like an attractive play around $6. This would imply a 15% move by July expiration, but I believe we could see $66 or $49, the breakeven points of this strangle. Of course, the quicker the move, the more time value will be left in addition to any intrinsic value. It certainly seems worth a bid.
GG, on the other hand, is in a channel pattern again. If the latest channel hadn't been so drawn out, I could see the case argument for an inverse head-and-shoulders pattern, but the symmetry is a little too far gone for me. Instead, I will also compare this one to the December 2013 pattern we saw take the stock to $29 from $21 in just over three months. Again, this sets up well for a July $24 straddle for $2.20. I could even see the logic in the October $24 straddle at $3.50 given the move we saw from January to mid-March of this year.
GG could just as easily go lower rather than higher from this pattern. A move through $24 should set up for a retest of the $20 area, while a push above $25.50 is likely to get the stock much higher. Given the July straddle needs $26.30 or $21.80 as intrinsic breakeven prices, I am confident we will see one of those two prices before the July expiration.
Ideally, I'd like to wait for a late-week slowdown, or even next Tuesday, to put these positions on given the upcoming holiday weekend, but if either stock breaks support or resistance, I probably won't have that luxury.
