Biotech has been the momentum darling for what seems like an eternity. Big pharma likes to dip its toes in those waters from time to time. Could Novo Nordisk (NVO) be the next ready to pop higher? Let me be upfront in saying that while I like the charts, I don't expect the types of returns that come to mind when you think of biotechs. I do, however, see a picture with a clear trigger and clear stop.
NVO has been running in a consolidation pattern, an ascending triangle in this case, since its big move higher in March. During this time, the Bollinger bands have been starting to squeeze together. Thanks in part to a timely upgrade plus a strong market on Wednesday, Novo Nordisk was able to push through previous price resistance on a closing basis.
Today is a very important confirmation day. What I want to see today is a green day where the Bollinger bands start expanding and the slow stochastic starts to push higher, with the slow %K crossing above the slow %D. We already have the RSI back over 50. That, along with price and the increase in volume over the last three days, is enough for some folks to take a shot here. It is for me.
The support level, below the recent breakout, comes in just under $56. Therefore, the downside risk is just about $2. The upside here should be at least one-third of the previous move higher. Therefore, I would set the first target at $61, but expect the move to culminate at $65.
The aforementioned picture is clearer on the weekly chart. We can see the ascending triangle along with the previous run higher. What we didn't see on the daily chart was this pattern also started in 2014. The one big difference was the stock spent the better part of 2014 in a long consolidation channel.
In looking at this, selling long date puts with a net entry anywhere below $48 looks appealing, but I still find the stock more appealing. The strength in the vortex indicator as well as the Chaikin Money Flow (CMF) should act as a lead to price here. Both are making new highs and I would expect price to follow. Short-term support is the same $56 level as on the daily chart, with longer-term support at $48. The upside target is the same as on the daily chart, since we are acting on the same pattern.
Many names have already broken out, with several extended already after Wednesday's action. NVO looks like it may be a little late to the party, but still offer a substantial reward vs. risk aspect to the trade.