Wednesday, March 14, 2012

CELG: Trying for a breakout

Celgene Corp. (CELG) is Big Pharma, with a collection of drugs focusing on treatment of cancer and immune system inflammation diseases, such as Revlimid and Thalidomide for multiple myeloma.

The Summit, New Jersey company also gets large revenue from sales of the attention deficit disorder drug Ritalin through a licensing agreement with Novartis.

CELG had the second-most-bullish chart among 18 stocks added today to the Zacks top buys list. It also had the highest volume in the bracket. MAIN had the most bullish chart. HTH and PEI completed the final four.

The CELG chart shows a sharp rise from $61.25 on Nov. 25, 2011 to a high of $75.11 on Jan. 17. Since that date CELG has been struggling to achieve a breakout, setting two higher highs -- $76.09 on Feb. 15 and $77.43 today, but each time on the same day pulling back to within a sideways range that has held sway since January.

Big picture: The breakout level is around the pre-recession peak of $77.39 set in August 2008. That is also an all-time high. So a persistent break above that level will be a meaningful symptom of momentum.

CELG has return on equity of 23% -- growth stock territory -- but with debt amounting to 33% of equity, which is far too high for my taste. (I start to get uncomfortable when long-term debt moves above 10% of equity.)

Institutions are heavily into CELG, owning 892% of shares. And they've bid up the price to a point where it takes $6.90 to shares to control a dollar in sales.

With average volume of 2.4 million shares, CELG has a good selection of options with high open interest and low bid/ask spreads. Earnings will be announced on April 30.

Decision for my account: I bought call options on CELG with a $72.50 strike price.

I screened the stocks using a tourney bracket with a one-month daily chart and a three-day half-hour chart, and then turned to a five-year weekly chart for the broad context in analyzing the bracket winner. See my essay "10,000 Charts" for a discussion of my screening methods.
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

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