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.
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.
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.
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.
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.