While investors continue to discount the seriousness of the coronavirus, Jim Cramer said he's looking for what the industry calls "uncorrelated returns," or stocks that can deliver no matter what happens with the Covid-19 outbreak. One way to get uncorrelated returns is with biotech, Cramer said during Thursday's "Mad Money" program, and cited Vertex Pharmaceuticals Inc. (VRTX) , a stock that's up 30% over the last 12 months.
Vertex's drug for cystic fibrosis, Trikafta, was approved last October and the company rushed it to patients. Analysts had forecast sales of $95 million for Trikafta last quarter, but Vertex stunned the Street with sales of $420 million. Its bottom line also bashed forecasts, with Vertex delivering earnings per share of $1.70. Vertex has several other drugs in development.
Let's check out the charts of VRTX.
In this daily bar chart of VRTX, below, we can see that prices made a sideways consolidation pattern from at least February to early October. From early October VRTX and the broad market took off to the upside. Prices are above the riising 50-day moving average line and the rising 200-day moving average line. We can see a bullish golden cross of these two averages back in early November.
The daily On-Balance-Volume (OBV) line also shows a strong move higher from October. The rising OBV line tells us that buyers of VRTX have been more aggressive and this information helps to support a bullish view on the stock. The 12-day price momentum study in the lower panel shows lower momentum peaks from late October, which tells us that the pace of the advance has slowed over time. This is a bearish divergence when compared to the price action. A bearish divergence is not a clear-cut sell signal, but it is a reason to watch the stock much closer.
In this weekly bar chart of VRTX, below, we can see that prices broke out on the upside from a much longer consolidation pattern than what we saw above on the daily chart. Prices are above the rising 40-week moving average line. The weekly OBV line turned upward with the price action and helps to confirm the price gains. The 12-week momentum study shows that momentum is weakening or that the pace of the rally is slowing. Again, another technical heads up to keep an eye on from here.
In this daily Point and Figure chart of VRTX, below, we can see that prices have reached an upside price target in the $247 area. Further gains are possible, but we need to keep this in mind.
In this weekly Point and Figure chart of VRTX, below, we can see a potential price target of $271,
Bottom line strategy: VRTX is still in an uptrend with no glaring reasons to sell. Raise sell stops to a close below $230 and think about becoming a scale-up profit taker/seller toward $270.
