Human Genome Sciences Looks Ready to Pop

When it comes to chart analysis, my goal is usually not to buy the strongest pattern or short the weakest, but to find the most tradable. I look for a chart pattern that shows a likelihood of moving in a particular direction, but which will allow me to test the waters without too much risk.

Take Human Genome Sciences Inc. (Nasdaq:HGSI) for example. The chart looks like it put in a solid bottom in December, set a higher low in late December and again last week, and is ready to resume the uptrend. The stock surged initially Monday on huge volume when the company lifted revenue guidance, but retreated almost completely. My guess — and that’s all it is — is that the drop was caused by investor concerns regarding the makeup of the phase 2b trial for Albuferon combined with overall market malaise.

It doesn’t matter, because the retreat very close to its 5-day low gave us a great opportunity to test the trend continuation hypothesis with little risk. If Monday’s high volume action was going to mark the end of the rally, I would have expected a substantial decline Tuesday, taking out short-term support around $1.85. Instead, HGSI rose over 16%. As long as the support holds, there is a good chance that HGSI makes a run at $3-3.50. Not a bad potential upside for roughly a dime in risk.

DISCLOSURE: Long HGSI.

Comments

[Dan Jacome:]

you'll like IMA then - look @ the 2 high volume days this week

Jan 15 07:47 AM