Trap or test?

  • BHVN rallied more than 12% off last Friday’s low
  • Stock first broke down out of a two-month consolidation
  • Futures action: Palladium worth more than its weight in gold

You’re a biopharma company looking forward to launching a key product, options volatility is pumped up, and you have earnings coming out in around three weeks.

Sounds like the perfect recipe for some interesting price action.

That’s certainly been the case the past few days for Biohaven (BHVN), which last Wednesday broke below the bottom of a two-month trading range. Two more days of selling dropped the stock to its lowest level since early November, at which point most people probably thought the bears had won the Battle of the Breakout:

Biohaven (BHVN), 9/23/19–2/4/20. Bear trap?

Source: Power E*TRADE

Biohaven, which specializes is migraine treatments, recently produced positive trial results for its flagship Rimegepant drug, which is now awaiting FDA approval.1  General enthusiasm over the promise of this class of drugs—which are aimed at treatment-resistant migraines (Amgen, Eli Lilly, and Novartis are in this space, too)—may be one reason the average analyst target for BHVN is $79.67,2 which implies a roughly 52% rally to around $12 above the stock’s record high from last June:

Chart 2: Biohaven (BHVN), 10/1/18–2/3/20. Bigger picture.

Source: Power E*TRADE

That’s a longer-term picture, though. In the short term, some paws probably felt a little pinched the past couple of days, since as of yesterday BHVN had rallied more than 12% off Friday’s low.

Is it a bear trap—i.e., a downside breakout of a trading range that quickly reverses and forces the short-sellers to run up the stock as they scramble to cut their losses? The jury is still out, but prices yesterday rallied past a pretty conspicuous point: the bottom of the trading range (around $50.50).

It’s test time. In a nutshell, if prices quickly retreat after yesterday’s move, many technical traders would consider it a bearish confirmation of the downside breakout, while the ability to hold above the bottom of the range could support the “bear trap” outlook—in which case, short-term traders may be eyeing the potential for the stock to at least test the range high around $58.50.

Finally, some traders may have been waiting a while for BHVN to make some kind of move. The stock appeared yesterday on a LiveAction scan for tickers with 30-day options implied volatility (IV) greater than its 30-day historical volatility—a possible sign that options traders are anticipating a bigger move than the one suggested by the stock’s recent price action.

Note: BHVN is currently scheduled to release earnings on February 27.

Market Mover Update: The Nasdaq 100 (NDX) erased the recent coronavirus pullback, jumping to a new all-time high yesterday. Also, there were big moves in several high-profile Chinese equities, including Luckin Coffee (LK), which rallied more than 15%—two days after it dropped as 26% intraday.

While gold futures tumbled amid yesterday’s relief rally in equities, palladium again showed why it’s the most precious of the precious metals: March palladium futures (PAH0) rallied more than 4%, running their YTD gain above 22%. March sugar futures (SBH0) temporarily broke out of a short-term consolidation and tagged $0.1513/pound on Tuesday after India—the world’s largest sugar producer—reported output between Oct. 1 and Jan. 31 had dropped 24% from a year earlier.3 March sugar is up around 11% on the year, and has rallied more than 38% since September 12.

Today’s numbers (all times ET): ADP Employment Report (8:15 a.m.), International Trade (8:30 a.m.), PMI Services Index (9:45 a.m.), ISM Non-Manufacturing Index (10 a.m.), EIA Petroleum Status Report (10:30 a.m.).

Today’s earnings include: Spirit Airlines (SAVE), Paycom Software (PAYC), Boston Scientific (BSX), Merck (MRK), Yum China (YUMC), General Motors (GM), GrubHub (GRUB), Qualcomm (QCOM), Peloton (PTON), Spotify (SPOT).


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1 TipRanks. 3 Monster Growth Stocks That Can Rip Higher in 2020. 1/19/20.

2 TipRanks. BHVN Biohaven Pharmaceutical: Analyst Price Targets. 2/4/20.

3 Reuters. India's Oct-Jan sugar output drops 24%—trade body. 2/3/19.

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