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Technician Picks Oversold Biotechs for Large Potential Trading Bounces

Now that there has been a biotech bloodbath seen of late, many fundamental and technical analysts have been looking for stocks which were either grossly oversold or which were now greatly undervalued. A report on Wednesday from Janney Capital Markets has targeted several companies it believes are now grossly oversold.

24/7 Wall St. would warn readers that this is a shorter term trading idea from Janney’s team and not a long term investing idea that was based on fundamental research. That means these are very short-term views, and they will have absolutely no meaning whatsoever in the course of after a few days or a month — or less if the selling pressure resumes and takes out stop-loss areas. Janney Capital Markets even made many such warnings here, and that was if the S&P 500 rolls back over and takes the biotech ETFs with it.

The focus here was on companies with very oversold near-term charts, but where the long-term charts were supportive of trading bounces as well. Janney listed 7 seven such stocks, and 24/7 Wall St. decided to focus on the four larger market capitalization names to avoid small cap stocks. These stocks had all traded handily higher on Wednesday along with the broader market bounce.

Alkermes PLC (NASDAQ: ALKS) was trading at $58.33 on Wednesday. The stock has a consensus analyst price target of $73.00 and a 52-week trading range of $38.49 to $75.17. It has a market cap of nearly $8.7 billion.

BioMarin Pharmaceuticals Inc. (NASDAQ: BMRN) shares were trading at $105.00, within its 52-week trading range of $65.91 to $151.75. The stock has a consensus analyst price target of $159.65 and a market cap of nearly $17 billion.

Dyax Corp. (NASDAQ: DYAX) was at $20.00, below its consensus analyst price target of $29.63. The stock has 52-week trading range of $9.19 to $30.55 and a market cap of almost $3 billion.

Valeant Pharmaceuticals International, Inc. (NYSE: VRX) shares were at $173.46 on its 52-week trading range of $111.41 to $263.81. The stock has a consensus analyst price target of $52.38. It has a market cap of about $59 billion.

The iShares Nasdaq Biotechnology (NASDAQ: IBB) was specifically mentioned here in the reference against the S&P 500. It was up 4% at $301.50 on Wednesday’s afternoon trading session. It has a 52-week range of $247.86 to $400.79.

Janney’s Dan Wantrobski said that the “IBB” trade would be to buy the IBB using support and stops near $285 (roughly -4% risk from today’s level) for a potential trade toward the $320 to $325 zone, so long as the S&P 500 trades the 1870 trend line as support. The reminder is made about stops and exits:

Remember, if broader market selling commences and the SPX violates this trend line, we would expect stronger corrective action to commence across the board, which would likely (negatively) impact the IBB on a nominal basis (even though it might still outperform on a relative one).

Wantrobski’s call is for the biotechs to produce some explosive oversold trading rallies just ahead. Charts have been listed below by ticker, and with a comparison to the S&P 500 Index.

Wantrobski’s final warning about how this is viewed as a mere trade is that it is from Janney’s “Trading Corner” rather than based upon the investment research area. He said:

From a longer-term perspective, the shot across the bow that we recently experienced via a breakdown on the relative strength charts implies this group may not regain its leadership position when the broader markets resume their primary uptrend. Furthermore – as noted above- we would be especially careful with this sector if the broader markets instead resume their corrective phase…

Source: Janney Capital Markets

By Jon C. Ogg