This week, we return to the scene of the crime of one of the worst picks I’ve made writing for CNBC Pro. The pick was from last October in Sarepta (SRPT) . It was a great looking chart, one that I labeled as a high-risk, high-reward trade. Sadly the high-risk won out. A week after making our call shares fell over 20% on news of a failed clinical trial. That is a big risk investors take when trying to find the winners and losers within the biotech sector. While we made the case to buy a basket of stocks representing the sector in the Bio-Tech ETF (XBI) , the trader and technician in me looks for individual stories within the space. Specifically, charts that show potentially more significant risk/reward opportunities. In this stock, we knew the downside risk and got burned hoping for that greater reward. Sarepta had checked all the boxes of a technical turnaround, but still didn’t reverse like I had hoped. That said, I’m not afraid to dip my toe back in these waters again. The XBI is still looking great. We may be slightly late to this party, but look for any pullbacks as an opportunity to buy the ETF. It is flagging in an uptrend and giving you more favorable risk levels to limit losses on the downside. As you can see in the above chart, shares have already broken out and made a sizable move. They are overbought as seen in their momentum indicators and should retrace to the $150 area. This would be a better risk/reward entry point to buy the ETF. Overall, the trend is still higher and it should resume on that path upward over the next quarter. Buying the ETF is a smart and safer play than trying to find a specific winner. Yet, once again, I turn to an individual stock within the sector to look for potentially greater returns. This week we see opportunity in Biogen (BIIB) . The Cambridge, Massachusetts, based biotech company has several focuses. Whether it is trying to cure autoimmune kidney diseases or stymie a disease near and dear to my heart in Alzheimer’s, they continue to make progress and have several drugs in the pipeline. As for those particulars, I’ll leave it to the fundamental analyst to do the deep dive behind the science; I focus on the trends. As always, we measure things in risk versus reward and look for the best setups. In the charts of Biogen I see good opportunities, especially when viewing it over multiple time frames. Short-term setup The one-year daily chart is in a strong uptrend. Last week’s price broke out of a nice ascending triangle. This gives us upside targets of $240 over the coming months. This recent pullback should find support just above $200 as former resistance is likely to become the new floor. The stock never reached overbought levels and its RSI continues to trend higher. An entry at these levels gives the trader a good risk/reward setup. Use the longer-term uptrend just below the rising 50-day moving average at the $190 level as a stop to limit downside risk. Longer-term setup When you look at the chart on a weekly basis going back five-years, you see the significance of the recent breakout. Price didn’t just break out on a short-term basis as seen in the one-year daily chart, but it snapped a downtrend going back to its 2021 peak. Not only did it break that declining trend, but it has now eclipsed its 200-week moving average. This is quite bullish. We also see a well-rounded base formation, a cup-and-handle if you will, on the weekly chart. We still need to get price confirmation with a move to $225 to confirm this pattern, but if price breaks above $225 on the weekly, look for longer term upside targets of $300. As for risk management, use the breakout at the 200-week level as your support and use the current uptrend around $185 as your ultimate level to exit the trade as the pattern has failed. The trade Using multiple time frames shows the significance of the recent move. We see that the long-term trend in the stock may just be getting started as it looks to resume a sustainable climb higher. The risk management is quite similar on both the daily and weekly charts with favorable upside rewards. While the stock has been on a nice run – up 21% year-to-date and 63% over the last 52 weeks – it still looks like the turnaround is truly beginning. Shares remain 52% off their all-time high set back in 2021, so we have something to reverse as well. As we learned before, picking individual stocks within this sector is challenging. Too many of these biotech names are tied to one specific drug break through. The charts will always be my guide, but as we learned with Sarepta, they don’t always work out… although, Sarepta’s chart is basing quite nicely again… 🙂 Jay Woods, CMT with Chase Games DISCLOSURES: None All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, or its parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
The charts on this biotech stock look attractive, says Jay Woods
