Long-Term Outlook For Vertex

About: Vertex Pharmaceuticals Incorporated (VRTX), Includes: CRSP
by: The Freedonia Cooperative

VRTX has outperformed several of its peers and competitors in 2018, with a price up 20% in the last 6 months.

More bullish news has come out of its tech partnerships and institutional investor ownership.

Long- and mid-term look bullish for VRTX based on technicals, and it should continue to see price increase long term.

The stock price action of Vertex Pharmaceuticals Incorporated (VRTX) continues to remain in an upward trajectory, finding itself in an upward channel. What we see in the weekly chart may actually be a bull flag formation if the price action for 2017 (flag-pole) and 2018 (flag consolidation) is to be considered in one piece. Therefore, things may be looking very good for this stock in the long term. An analysis of the performance of this stock in the medium term and long term is provided.

Fundamental Outlook

Vertex Pharmaceuticals has been a top player in research work into the treatment of cystic fibrosis. SYMDEKO, the third drug released for the treatment of this condition, has performed well in 2018, giving the stock price a much-needed boost, especially as its peers are seeing falling values. VRTX is also in partnership with CRISPR (CRSP) in its gene editing work and has also announced an access contract with Danish pharmaceutical giant Amgros for its cystic fibrosis medicines.

Just today, Mirae Asset Global Investments bought more VRTX shares, increasing its ownership stake by more than 30%, a bullish point to stand behind for VRTX and biotech investors.

Technical Outlook

The weekly chart shown below shows the price of VRTX continuing to trade within the borders of the upward channel.

VRTX Weekly Chart: December 1, 2018

If the price action is considered in totality, starting from the steep bull run of 2017 till the consolidation trading within the channel as seen in 2018, we may actually be dealing with a bull flag formation.

To get an idea of what is happening in the medium term, we turn to the daily chart to see what price action is like. As seen in the chart below, the price action has formed a double bottom within the area of channel consolidation and is approaching the horizontal resistance at $186, which will serve as the neckline to be broken.

VRTX Daily Chart: December 1, 2018

So, what are the possible price action scenarios for VRTX as trading for December commences?

Trade Scenario 1

It must be mentioned that the long-term picture for VRTX is for price to eventually breakout to the upside from the bull flag consolidation area in a move which could take several months to occur.

With a focus on the consolidation area captured by the upward channel (i.e. the flag consolidation area), it is expected that price action will continue to ride on the wings of the modest gains in the EPS to push upwards to meet the channel resistance line. This is what is expected on the weekly chart. On the daily chart, price action will have to overcome the neckline in order to push towards the upper channel line. This move has to be accompanied by a significant increase in buying volume. Using the breakout filter (3% penetration rule), it is expected that the price should close above the neckline at a price of $188 to $190 for the breakout to be deemed valid. If the breakout occurs, there could be a slight pullback to the broken neckline before the upside move to the upper border of the bull flag/channel consolidation area is completed.

Trade Scenario 2

If price succeeds in getting to the upper channel trendline, two things could possibly happen. Price will test that resistance line several times, and if this area proves to be too strong, then prices will turn again to the south and make a move for the opposing trendline in continuation of the consolidation seen on the weekly chart. This could indeed occur several times over the course of many months. If price continues in this back-and-forth consolidation movement, moving from the upper border to the lower border and back to the upper border in sequence as has occurred since late 2017, this could provide an opportunity for range traders to buy off the channel support line anytime price is able to retreat to that area.

However, if some positive news for VRTX hits the market, this could trigger a sharp increase in buying volume that could send the price above the bull flag and possibly cause the continuation of the long-term uptrend that is envisaged for this pattern. As it is, it has taken close to 18 months for price action to form the flag-pole and the flag itself. This scenario is one which could extend well into 2019.

Market sentiment

  • Long-term: bullish
  • Mid-term: bullish

The long-term sentiment for VRTX is bullish, not only because there has been positive sentiment for the various genome-editing companies since 2017 but also because the bull flag formation is expected to have long-term bullish outcomes for the stock. Medium term, the sentiment is neutral. Several obstacles will need to be crossed before we enter into the long-term bullish picture.

Please note: The price moves described above are very likely to take several months to evolve, so traders looking to trade should keep this in view.

Disclosure: I am/we are long VRTX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.