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Celgene, A Multinational Biopharma

07/07/08 02:00:55 PM
by Koos van der Merwe

Investing in pharmaceutical companies can be risky, especially when patents are due to expire or more efficient drugs hit the market.

Security:   CELG
Position:   Buy

Celgene is a multinational biopharmaceutical company that focuses on the discovery, development, and commercialization of products for the treatment of cancer and other severe, immune, inflammatory conditions. Sounds impressive, and the stock price suggests that it is. Biopharmaceutical companies always face the fear that their products can be usurped by another company with more advanced research, or a lucky breakthrough.

A study of Celgene shows only four products in their armory, but their research and development looks extremely interesting, especially their research into stem cell therapy. The market also seemed to agree with this, as can be seen in Figure 1, because the price moved from a low of $2.84 on July 2002 to a high of $75.44 by October 2007. A comfortable profit indeed.

FIGURE 1: CELG, WEEKLY. This chart shows the rise of the company's share price since 2002.
Graphic provided by: AdvancedGET.
What lies ahead? The wave count is suggesting a wave 5 target of $81.35 and with a probability index (PTI) of 40%. Two negatives are:

1. Volume. Volume has been falling as the price has risen, suggesting weakness.
2. The stochastic oscillator, which is moving from an overbought level.

FIGURE 2: CELG, DAILY. This chart shows present buy signals.
Graphic provided by: MetaStock.
Figure 2 suggests that the stock could indeed reach the highs suggested by Figure 1. The present price is testing what appears to be a triple top. Should it break through, and the buy signals given by both the rapid relative strength index (RSI) confirmed by SVAPO, suggest that this is very likely. On Figure 2, I have also shown the buy signals given by the stochastic RSI.
Note too how the price has broken above the rising stop-loss indicator, a strategy that can be used as a confirmatory signal. What is disturbing, however, is the low volume.

Celgene Corp. is a stock that I would watch. A move above the triple-top resistance line definitely signals a buy, with a target of $81.35.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.

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