Today was a good day for building and reviewing watch lists. When you see that kind of market weakness it’s always a useful exercise to run through all your existing positions one by one and confirm that your entry rationales remain valid and where your risk is greatest. As I confirmed earlier, we have a lot of stocks that have been in strong uptrends already, so we’ve given a bit back today but nothing has invalidated yet. The real test of that may be in the next day or so.
What I did find though was an opportunity to enter a stock I’ve been watching for a while; Alexion Pharma ($ALXN). As you can see on the 2-year weekly chart below, $ALXN enjoyed an incredible run of all time highs which ended late last year. It consolidated further but in the last two months has put together a promising uptrend which I believe has further to go and could even result in a full resumption of the long-term trend.
Those last two months are shown in greater detail on the daily chart below. I particularly like how each advance has been on increased volume, and also has subsequently been very tightly consolidated. Granted, this has been in a strong tape for the overall market, but that kind of accumulation at successively higher levels shows it’s been genuinely supported and therefore likely sustainable, not just floating higher on the market tide. It also respected the 200-day, pausing just below in a high tight flag formation before poking above it late last week.
All things considered, I think today’s move looks like a reactionary ‘throwing the baby out with the bathwater’ move. It’s in a sector that’s done well overall, it’s relatively small cap, and it can often trade in low volume, so it got hit all ways today. But when you look at the context, the move wasn’t on much volume and it did little damage to the trend. I don’t worry too much about things like going back below the 200-day when it’s a reaction move like this. Instead I think it provides us with a gift of an entry.
I was already planning to use a clean break and close below that $91 area as a stop, and see no reason to alter that now, as a move back there would suggest it could still be tracing out a more complex and lengthy consolidation pattern than previously thought, and will need more time to resolve it. With our stop effectively tighter this gives us a very attractive risk/reward trade. We’ll enter at the open Tuesday. Be aware it reports on the 25th.