(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of ACAD.)
Biotechs have been surging of late with the iShares Nasdaq Biotechnology ETF (IBB) up by almost 20% since early May. Now some of these stocks may be ready to rise to even higher prices in the coming week, by over 10%. (For more, see also: 3 Biotech Stocks at Low-Risk Buying Levels.)
Technical analysis suggests that Acadia Pharmaceuticals Inc. (ACAD), BeiGene Ltd. (BGNE) and Intercept Pharmaceuticals Inc. (ICPT) are three such stocks that could see the significant gains. (For more, see also: Strong Bullish Breakout for Biotech Sector ETF.)
Acadia shares have skyrocketed higher over the past few weeks and are trading around a technical resistance level at $21.50. Should the stock be able to rise above that level of resistance, the shares could rally by 13% to a price of $24, from its current price of around $21.40. The relative strength index (RSI) for the stock has been trending higher over the past several weeks despite the stock trading lower. That is a bullish divergence which suggests the shares may rise. The stock exploded higher on above-average volume which shows that more buyers are entering the stock.
BeiGene is also breaking out after the stock price rose above a technical downtrend. Now the shares are ready to rise to around a price of $195 from their current price of around $172, a jump of over 13%. The RSI began trending higher as the stock price was falling in August which is a bullish divergence.
Intercept has been rocketing higher all year, and now the shares could rise even further. The stock has risen above a level of technical resistance around the price of $118, with the shares now trading around $122. The chart suggests the shares could continue to rise by 12% more to as high as $136.50. However, unlike the other two stocks Intercept may run out of steam once the stock reaches its next level of technical resistance. That is because the RSI for Intercept is now shifting and trending lower and that is a bearish divergence suggesting that the stock will fall.
For now, the sector is grinding higher, and these three stocks all look to be a big beneficiary from that trend. But biotechs are some of the most volatile stocks around, and it may only take one bad piece of news to send these stocks lower.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.