Biotech giant Celgene Corp (CELG) is likely to end its long correction in 2017 and enter a trend advance that builds impressive gains. That’s good news for long-term shareholders caught in volatile swings since the stock peaked above $140 in July 2015. It also suggests the sector will flourish in a Trump administration that’s likely to ignore rising drug costs while tackling the larger challenge of repealing Obamacare and reinventing the U.S. health care system.

Major biotech funds topped out at the same time as Celgene in 2015, highlighting tight correlation, but the stock has displayed market leadership many times in its long history and could now act as a catalyst for a broad-based rally. It depends on renewed risk appetite after a long period of political and social pressure on rising drug costs that now require a signal from the new administration that price shaming policies are likely to end.

CELG Long-Term Chart (1993–2016)


The stock came public in the mid-1980s and traded for over a decade in a tight range with resistance at 80-cents (post four stock splits). It broke out in 1999 and entered a strong uptrend that topped out at $9.50 less than one year later. The subsequent decline gave up 85% of its value into the July 2012 low at $1.42 while the subsequent bounce took nearly three years to complete a 100% retracement into the prior high.

A 2015 breakout caught fire, lifting the stock in a graceful series of new highs that culminated at $37.72 in October 2007, at the same time that broad benchmarks hit their bull market highs. A decline into the mid-20s got bought, yielding a lower August 2008 high, ahead of a breakdown that ended at $18.45 in April 2009. It took three years to reached the prior high in 2012, ahead of a 2013 breakout that gathered momentum into the July 2015 all-time high at $140.72.

The stock plunged during the August 2015 mini flash crash, pounding out a deep low at $92.98 while the subsequent recovery wave stalled well below the prior high. The stock has held three tests at support in the last 17-months, building a rounded base that should now support an assault on the 2015 high. At the same time, the monthly Stochastics oscillator has flipped into a buy cycle that should underpin bullish efforts in the next three to six months.

CELG Short-Term Chart (2014 - 2016)


The daily view highlights the rounded correction under construction since the July 2015 top. The 5-week trading range between the July 2015 high and August 2015 low has contained price action in the last 17-months, building a rectangular pattern with a rounded bottom. Rally waves since the February 2016 low have posted higher highs and higher lows, suggesting the correction has built a sponsorship base that should eventually support a new trend advance.

The stock gapped up after the presidential election, exiting a 10-month basing pattern while completing a round trip into the December 2015 swing high. This buying wave ended the string of lower highs in place since that time, consistent with the final stages of an intermediate correction. A pullback into December filled the gap, yielding a strong bounce that’s now challenging the rally high.

On Balance Volume (OBV) peaked with price in July 2015 and entered a distribution phase that continued into the February 2016 low. It’s stair-stepped to higher ground since that time and is now within striking distance of the 2015 high. This marks a bullish divergence because the stock has just reached the 50% selloff retracement level, raising odds that price will play catch-up in coming months.

The Bottom Line

Celgene may be finishing up the final stages of a broad correction and getting ready to embark on a 2017 trend advance that reaches new all-time highs.

<Disclosure: the author held no positions in aforementioned stocks at the time of publication.>

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