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While I’m always on the lookout for stocks that are either leading or have the potential to lead the broader market, leadership is never more important than when traders are looking for bullish ideas in a down market.

Prior to this month, 2021 had been incredibly kind to bullish traders, as the S&P 500 has enjoyed one of its longest stretches in history without a simple 5% correction.

Before we continue, it is worth highlighting that an official 5% correction still has yet to occur, based on closing levels, which is how corrections are actually measured.

Specifically, so far, the S&P 500 has suffered a 5.11% correction on an intra-day basis during this month’s earlier correction.

On a closing basis, however, the S&P 500 has only witnessed a correction of -4.2%.

As we head into the final days of September, however, the market is following a very familiar path, showing weakness during what tends to be one of the worst seasonal periods of the year.

This can be seen in Figure 1 below, which shows the average performance of the S&P 500 cash index (SPX) over the past 20 years, broken down by each month.

Figure 1

Luckily, the biotech sector is considered to be one of those sectors that provides a defensive edge during periods of broad market weakness.

Today, I am going to show you two biotech stocks that held up well during this week’s early tumult, and whose setups still present good swing trade potential with limited downside risk.

 

What are “defensive stocks?”

Defensive stocks are stocks which tend to be less vulnerable to periods of broad market weakness than others.

Because of this, they tend to be favored when traders feel the market is vulnerable to a period of weakness and they want to hedge their portfolios.

Different stocks can be desirable for different reasons.

For instance, some are highly volatile but have the potential for quick, large returns.

Others are less volatile, but tend to be more reliable.

In all cases, these securities are known as defensive stocks.

As luck may have it, healthcare is one of those sectors.

When discussing Healthcare stocks, pharmaceutical companies usually dominate the discussion, particularly the “big Pharma” names like Johnson & Johnson and Pfizer.

But biotechnology companies provide the same products as pharmaceuticals.

The difference is that biotech companies derive their medicines from living organisms, whereas pharmaceuticals develop theirs from chemicals.

The two biotech stocks I like right now for their recent relative strength and favorable risk/reward setups are C4 Therapeutics Inc. (CCCC) and Adaptimmune Therapeutics plc (ADAP).

First up is C4 Therapeutics Inc. (CCCC). C4 Therapeutics Inc. is a biopharmaceutical company focused on harnessing the body’s natural regulation of protein levels to develop novel therapeutic candidates to target and destroy disease-causing proteins for the treatment of cancer, neurodegenerative conditions and other diseases. C4 Therapeutics Inc. is based in Watertown, MA.

As Figure 2 shows, the stock recently rallied out of, then successfully tested the breakout area of a beautiful saucer bottom, offering post-pattern potential to the $63 area over the weeks ahead.

The other favorable part of this setup is the nearby protection.

Specifically, in order for this bullish setup to keep working toward the $63 target area without any risk of a larger correction first occurring, CCCC’s share price CANNOT fall back below the most recent pivot low of $46.32, as this would cause the uptrend to break down.

Figure 2

Next up is Adaptimmune Therapeutics plc (ADAP). Adaptimmune Therapeutics plc is a biopharmaceutical company focused on cancer immunotherapy products based on T-cell receptor platform. Adaptimmune Therapeutics plc is based in Abingdon, United Kingdom.

Figure 3

After filling the gap left by the large rally on 09/07, ADAP began to work back above the 20-day moving average this week.

Earlier this week, I began alerting readers to the fact that I liked this stock for a short-term swing toward $6s.

The stock has since risen in the desired direction and has room to climb against a stop of $5.

ADAP has phase 1 and phase 2 data possibly coming up in the next month or two.

Phase 1 update at American Society for Radiation Oncology (ASTRO) October 24-27, 2021.

Also, ADAP has Phase 2 enrollment has been completed.

Initial data at ASCO June 4-8, 2021.

Abstract noted overall response rate was 39.3% (13/33), 41.4% (12/29) for synovial sarcoma; 25.0% (1/4) for MRCLS.

Next update due at CTOS meeting November 10-13, 2021.

Author: Jeff Williams

Jeff Williams is a full-time day trader with over 15 years experience. Thousands of entry-level and experienced traders alike – day-traders and swing-trade small cap stock traders – credit Jeff with guiding them to turning small accounts into big accounts.

Jeff’s "Small Account Challenge" shows people how to transform accounts from a few thousand dollars into $25k, $50k or even $100k.

A few days ago, I wrote about RWLK and whether or not the stock might experience further upside.

On day one of the move, the stock was up almost 100% and traded over 320M shares. No press release or catalyst caused this impressive move.

I laid out several different scenarios for the stock in the first article, and yesterday one of them materialized.

Although, it materialized differently than I suspected, which makes for an excellent teachable moment and case study!

But first, a quick reminder, What is RWLK?

ReWalk is a medical device company. The company, according to Yahoo, designs, develops and commercializes wearable robotic exoskeletons for individuals with mobility impairments or other medical conditions in Israel, the United States, Europe, the Asia-Pacific, Latin America, and Africa.

Market Cap: 93.22M

Float: 45.43M

Short Interest: 0.50%

The Teachable Moment

On day one, the stock gave precise levels of support and resistance, which would act as guides in the days to come.

As I mentioned in the previous article:

$1.50 is the opening price from yesterday and also represents the break of the downward trend. Below this price, anyone who bought the stock on the gap up will be underwater.

$1.95 – $2 is yesterday’s pre-market resistance, which later turned into critical intraday support. This is the most crucial level of support from yesterday.

$2.30 is a key level of intraday and after-hours resistance.

$2.60 is resistance from the close, and $2.68 is the high of the day.

And with those key levels in mind, I noted the following:

“As the stock advances, the bulls would not want to see the stock fail to hold above critical support of $1.95 – $2. A move below this level might signal a potential shift in momentum.

If the stock breaks below $2 and heads towards yesterday’s opening price, the bulls might quickly lose confidence in the long thesis.”

Now let’s take at the action from day two and day three:

On day two, the stock faded off and consolidated below the critical support of $2. As I mentioned above, this might have caused the bulls to lose confidence. This also might have caused the shorts’ confidence to grow, along with their positions.

Notably, on days two and three, the stock failed to get below the opening price from day 1. As I mentioned earlier, If the stock broke below that price, it would have signaled the end of this move. That never happened.

Now let’s take an even closer look at day three because this is where it gets interesting.

Immediately after the open, the stock pushed higher on volume and reclaimed $2. Remember, $2 is critical support, and the bulls do not want to see this level turn into resistance.

At this moment, those short the stock might have been thinking that the pop higher is an opportunity to short as it is just a dead cat bounce.

However, notice how the stock attempted to break back below $2 (highlighted yellow) but sharply reversed and broke higher.

Once the stock reclaimed critical support, those short the stock from the day before are now trapped.

The $2 reclaim and push higher is a textbook example of a short squeeze.

In the future, $2 will continue to be the most crucial level, acting as support. A move above yesterday’s high and then $2.60 could signal a breakout.

Author: Jeff Williams

Jeff Williams is a full-time day trader with over 15 years experience. Thousands of entry-level and experienced traders alike – day-traders and swing-trade small cap stock traders – credit Jeff with guiding them to turning small accounts into big accounts.

Jeff’s "Small Account Challenge" shows people how to transform accounts from a few thousand dollars into $25k, $50k or even $100k.

I wrote a detailed post yesterday that explored the energy sector’s strength and potential sympathy plays as a result.

If you recall, I discussed the chart pattern in the XLE and how the range contraction might signal that a breakout is likely to happen soon.

Well, lone and behold, yesterday that breakout occurred.

As I predicted and mentioned in yesterday’s post, the strength in the sector might have a spillover effect on specific stocks poised to benefit from the overall strength in the industry.

The popular penny stock grabbing all of the headlines at the moment, CEI, broke out of its consolidation yesterday and closed near the high.

Yesterday I added a few names to my energy watchlist as I prepared for a potential theme play after noticing the strength in the sector and CEI.

I briefly mentioned one stock, in particular, in my previous post.

However, the breakout and action in the name yesterday now warrants a closer look at the stock.

Northern Dynasty Minerals (NAK)

The company, according to Yahoo, engages in the exploration of mineral properties in the United States.

Although the company is not directly in the same sector as CEI, it shares a similar technical setup. It has been widely touted as a sympathy play by retail traders online popular social media platforms like Twitter and StockTwits.

The stock first gained attention and popularity online as CEI approached $1.

Market Cap: 310.44M

Float: 474.99M

ATR: 0.05

Average Volume: 7.12M

Short Interest: 3.99%

For the last two weeks, shares of NAK have consolidated in a bullish pennant, with support at $0.45 and resistance at $0.50.

Yesterday, however, the strength seen in the broader market and industry, along with a significant breakout in CEI, resulted in the stock breaking out of the pennant and trading abnormal volume.

The stock traded over 59M shares yesterday, which is substantially higher than its average volume of just 7.12M. The bulls will now have increased confidence in the breakout as it was met with a substantial increase in volume.

As the stock has a large float of 310.44M shares, the bulls will want to see the volume increase sustained.

The stock also traded almost twice its average true range, signaling a range expansion and increased volatility.

What’s Next for the Stock?

It has become apparent that the stock is moving primarily in sympathy to CEI. So as time advances, the potential for continuation to the upside might depend on CEI’s ability to remain on the front side of the move.

Key levels of support and resistance:

The breakout level of $0.50 will now act as critical support going forward.

Yesterday the stock broke out higher, on increased volume, over $0.55, which should now turn into support if the stock pulls back.

Resistance from yesterday afternoon was experienced around the $0.60 level.

As the stock advances, the bulls will want to see the resistance from yesterday afternoon establish itself as support.

If the stock pulls back, the bulls will not want to see the stock below $0.55. If the stock fails to hold above $0.55 and fades below $0.50, it might signal the end of the bullish move.

Alternatively, if the stock can continue to base higher and advance, the next resistance level would be $0.80.

Author: Jeff Williams

Jeff Williams is a full-time day trader with over 15 years experience. Thousands of entry-level and experienced traders alike – day-traders and swing-trade small cap stock traders – credit Jeff with guiding them to turning small accounts into big accounts.

Jeff’s "Small Account Challenge" shows people how to transform accounts from a few thousand dollars into $25k, $50k or even $100k.