Flu Stocks Looking Sickly

By Joey Fundora | December 16, 2009 AAA

The H1N1 influenza strain, also commonly referred to as the swine flu, has been in the headlines most of this year. While this certainly was and remains an active flu season, it appears that the fear of this pandemic has subsided. Many flu stocks initially started rising in spring 2009 as the new strain was announced, and then had a few spikes on other news such as when the WHO declared the strain of influenza a pandemic. While many of these stocks remain well above their initial breakout points, they have slowly been deteriorating and are beginning to look sick themselves.

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BioCryst Pharmaceuticals, Inc. (Nasdaq:BCRX) has been one of the leading stocks for this group, rising from under $2 a share to almost $14 in the span of a few months. The initial spike in late April was met with some selling pressure, but ultimately BCRX was able to consolidate and then break out again in July. BCRX then began a much longer consolidation, trading in a range between $8 and $14. However, BCRX broke down from that channel recently, and appears to have put in a double top. The $8 area is a key level to watch, as it should now become resistance after failing to hold as support. (For related reading, check out Analyzing Chart Patterns.)

Source: StockCharts.com

Novavax, Inc. (Nasdaq: NVAX) is another flu stock that had a huge surge in late April and then settled into a consolidation. It was also able to clear the consolidation in July, much like BCRX. Unfortunately, after a large run up, NVAX began to lag its peers. After a high-volume gap in September, NVAX gapped down the next day, completing an island gap reversal pattern. This pattern often marks a top as the gap down reversal ends up trapping everyone attempting to buy the gap up "breakout". NVAX fell under the 50-day moving average soon thereafter and has remained below the average since then. It recently fell below the prior breakout area as well, which should also become an important resistance area moving forward.

Source: StockCharts.com

Sinovac Biotech, Ltd. (Nasdaq:SVA) is another flu stock that could be regarded a "leader" from a performance standpoint. SVA was able to rally from $1 a share to a high of $12.50 in just five months. Notice how the highest volume up day also marked a top in this chart. SVA has been consolidating for the past three and a half months, and is starting to test the lower area of the established trading range. In fact, SVA is actually a little below the range, and may already have begun a breakdown.

Source: StockCharts.com

We can add Quidel Corporation (Nasdaq:QDEL) to the list of flu stocks that are not acting healthy. QDEL also experienced a strong run from spring through autumn, but after falling beneath its 50-day moving average, QDEL has been heading steadily lower. It also fell beneath its 200-day moving average in late November and it hasn't been able to reclaim this average as support. Everyone who bought this stock over the past several months is underwater, and a break below the recent trading range could spark a selloff.

Source: StockCharts.com

Bottom Line
While the threat of an influenza pandemic is certainly not behind us, the action in the flu stocks is telling us that their run might be over. Once each of these stocks fell below their 50-day moving averages, they continued to gradually decline and are now breaking down from their established bases. The markets are always looking forward and in this case, they may be telling us that this threat is contained - at least for now.

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At the time of writing Joey Fundora did not own shares in any of the companies mentioned in this article.

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