Like most of the stock market, the shares of Alexion Pharmaceuticals (ALXN) have struggled in May, down nearly 10% so far., observes Andrea Kramer, an analyst with the industry leading options advisory service, Schaeffer's Investment Research.
However, now could be an opportune time to roll the dice on a big rebound for ALXN, for two reasons: first, pullbacks to a key trendline have preceded healthy gains in the past; and second, the security has seasonality on its side, tending to heat up in the summer.
The shares of Alexion Pharmaceuticals started 2019 red-hot, rallying from their December 24 low of $92.56 to a new annual high of $141.86 by April 10. Since then, the equity has pulled back to the $120-$122 area, which represents a 38.2% Fibonacci retracement of that rally.
In addition, the stock is back within one standard deviation of its 160-week moving average, after a lengthy stretch above this trendline.
Over the past 15 years, there have been four similar pullbacks to this moving average, after which ALXN was higher an average of nearly 36% three months later, per data from Schaeffer's Senior Quantitative Analyst Rocky White.
From current levels, another 36% surge would put Alexion Pharmaceuticals stock around $167 — territory not charted in more than three years.
Even more compelling, perhaps, Alexion has been the best stock to own in the summer, looking back 10 years. More specifically, considering only S&P 500 stocks with at least 10 years' worth of data, ALXN's average return from June through August was the highest, at 14.62%.
Looking at trader sentiment, the options crowd is already speculating on a bounce for the pharma concern. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open more than seven ALXN calls for every put in the past two weeks.
The resulting 10-day call/put volume ratio of 7.09 is in the 98th percentile of its annual range, pointing to a much healthier-than-usual appetite for bullish bets over bearish lately.
