Heart stock finds pulse

05/07/20
  • ABMD up 45% in past seven weeks
  • Stock sold off much less than broad market in March
  • Recent highs coincided with earnings, key acquisition

You never know when a market will show unexpected signs of life.

Medical device maker Abiomed (ABMD) is a long-slumbering stock that recently tagged a key level on its price chart—just as it announced it was acquiring tech that may expand its footprint in the pandemic era.

The stock jumped 13% last Thursday in the aftermath of its latest earnings release and the announcement that it was acquiring Breethe, a start-up that developed a compact, portable oxygenation system1—a product that not only dovetails with Abiomed’s existing product line of heart pumps and related devices, but which also help patients fighting COVID-19.

Chart 1: Abiomed (ABMD), 11/15/19–5/6/20. Abiomed (ABMD) price chart. Consolidating below resistance

Source: Power E*TRADE


Abiomed’s recent rally pumped up prices to a key resistance level around $200, the same general price zone that turned back the stock in late 2019 and earlier this year. Although ABMD pulled back for a couple of days after last Thursday’s jump, it bounced back on Tuesday and Wednesday—an encouraging sign for bulls who may be looking to play a potential breakout move above resistance.

Aside from the earnings and acquisition news, why would such traders be thinking about a breakout rather than a retreat? Ironically, it may have something to do with ABMD’s longer-term trajectory. After quadrupling from January 2017 to June 2018 (and topping out at a record high around $460 in October of that year), ABMD has been in an extended downtrend—which may be why it suffered less than many other stocks during the February–March sell-off. From February 19 to March 20, the stock fell 22%—a fairly mild downturn compared to the S&P’s 34% drop. Since then, ABMD has rallied around 45%.

One possible explanation is that the majority of people who wanted to sell ABMD had already dumped their shares by the time the COVID-19 panic kicked in. And when everyone who wants to sell has sold, there’s always the chance that the upside can become the path of least resistance. Also, institutional holding data  indicated hedge fund interest in the stock was above average, and bullish positions had increased toward the end of last year.2

Chart 2: LiveAction scan: Big one-week IV loss. Unusual options activity. ABMD implied volatility -34.6%

Source: Power E*TRADE


But the stock isn’t the only potential breakout play. As often happens in the wake of an earnings announcement, ABMD’s implied volatility (IV) dropped in recent days, as evidenced by its appearance on the following LiveAction scan yesterday (above).

IV is the market’s estimate of future price volatility embedded in options prices. All else being equal, lower IV often translates into lower options prices, which may have had something to do with the fact that the ABMD June $200 call options were in the red yesterday morning even though the stock was up more than 1.5%.

Chart 3: ABMD June 200 call option. Abiomed (ABMD) call option price chart. Potential options breakout?

Source: Power E*TRADE


At around $6.60, the June $200 calls were trading roughly 30% below where they were on April 30. Bulls who see the potential for the stock to break out above resistance in the near future may be anticipating a similar momentum move in call options—which, of course, could offer a larger percentage return (or loss) because of their leverage.

But because long calls also limit risk, they may attract traders looking to keep their own pulses under control during volatile times.  

Market Mover Update: LivePerson (LPSN) skyrocketed 40% yesterday in the wake of Tuesday’s post-close earnings release (see “Right place at the right time?”).

Tyson Foods (TSN) slumped yesterday while Wendy’s (WEN) soared post-earnings (see “Where’s the beef?”).

Today’s numbers (all times ET): Challenger Job-Cut Report (7:30 a.m.), Jobless Claims (8:30 a.m.), Productivity and Costs (8:30 a.m.), Raphael Bostic Speaks (8:30 a.m.), Neel Kashkari Speaks (12 p.m.), Consumer Credit (3 p.m.).

Today’s earnings include: Bristol-Myers Squibb (BMY), Raytheon Technologies (RTX), Paylocity Holding (PCTY), Murphy Oil (MUR), Dropbox (DBX), Trade Desk (TTD), EPAM Systems (EPAM), Qorvo (QRVO), ViacomCBS (VIACA), Moderna (MRNA), Uber (UBER).

 

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1 The Motley Fool. Why Abiomed’s stock price jumped last week. 5/5/20.

2 Insider Monkey. Hedge Funds Have Never Been This Bullish On ABIOMED, Inc. (ABMD). 3/22/20.

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