In the second Executive Decision segment of his "Mad Money" program Monday, Jim Cramer checked in with Jim Foster, chairman, president and CEO of Charles River Laboratories International Inc. (CRL) , a stock that's up 16% for the year but off its previous highs.
Foster said the company's business in not linear, but he remains thrilled with its long-term growth rate and growth forecasts. Charles River Labs delivered 8% growth for the third quarter and forecasts high single-digit growth over the next two to five years.
When asked about the biotech industry, Foster said financing has never been higher and the number of drugs under development is up dramatically. Charles River Labs worked on 85% of all drugs approved last year, he added, and it continues to add capacity to do even more. The industry is curing and treating diseases that just a few years ago were fatal or serious, Foster said, and that trend continues with newer and better technology.
Let's put on a lab coat and check out the charts.
In this daily bar chart of CRL, below, I find a curious mix of price action and volume. The price action shows a narrowing trading range from June as the high/low range shrinks. Typically, when a trading range gets tighter and tighter the trading volume or turnover gets smaller and smaller. Traders make money when the market moves. A big range allows for grabbing some profits as a day trader or swing trader. When the range shrinks the opportunity to make money declines and then the trading volume goes elsewhere. With CRL the trading volume remains pretty busy from June.
The daily On-Balance-Volume (OBV) line even shows a rise from June, telling us that buyers of CRL have been more aggressive these past five months. The Moving Average Convergence Divergence (MACD) oscillator has been hugging the zero line not surprisingly, but looks like it could move above the zero line in the weeks ahead.
In this weekly bar chart of CRL, below, we can see a mixed picture. Prices have been in a tightening trading range for months and sit below the rising 40-week moving average line. The weekly OBV line has been steady the past 12 months and the MACD oscillator recently slipped below the zero line for a sell signal.
In this Point and Figure chart of CRL, below, we can see a potential downside price target of $121 but a trade at $135.28 will probably generate an upside price target.
Bottom line strategy: This tight trading range will not persist forever, so traders should be prepared to go long above $135.28, which will also put prices above the 200-day moving average line. Risk below $128.