It is no secret that stocks are prone to sudden moves in either direction. This could be triggered by economic data, geopolitical events, stock-specific news, or market sentiment.
Trading such volatile stocks are usually considered a high-risk-high-reward venture. Many traders opt to stay out of the trade rather than risk a loss. However, careful analysis of the charts could help you to enter at the right levels, thereby limiting risk to an extent.
With this in mind, we have started a new weekly series on the trending stock of the week —stocks that are featured heavily in the news.
This week’s stock pick is Moderna, Inc. (NASDAQ: MRNA), the biotechnology company pioneering messenger RNA (mRNA) therapeutics and vaccines to create a new generation of transformative medicines for patients.
Why is MRNA trending?
The vaccine maker announced that its COVID-19 Vaccine candidate (mRNA-1273) met its primary efficacy endpoint in the first interim analysis of its Phase 3 study. Known as the COVE study, it enrolled more than 30,000 participants in the U.S.
The study results showed that the vaccine candidate met the statistical criteria with an efficacy of 94.5%. Moderna now intends to apply for an Emergency Use Authorization with U.S. FDA in the coming weeks. If successful, the stock could surge even higher.
Here’s how to trade MRNA right now.
MRNA Chart
On analysis, there are multiple bullish indications on the daily chart of MRNA.
#1 Unbroken Uptrend: The daily chart shows that the stock’s uptrend is unbroken, as it has been forming higher highs and higher lows for the past several months. This uptrend line has been marked as a purple color line. The stock had taken support near this trendline multiple times before bouncing higher again. These bouncebacks from the trendline are marked as pink color ellipses in the daily chart. Recently, the stock has bounced higher from this trendline support again and commenced another upmove.
Daily Chart – MRNA
#2 Price Above MAs: The stock is currently above the 50-day as well as 200-day SMA, indicating that the bulls are still in control.
#3 Bullish MACD: The daily chart shows that the MACD line (blue color) is above the MACD Signal line (orange color), which is a possible bullish indication.
#4 Bullish Aroon: The value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30 in the daily chart. This indicates possible bullishness.
Recommended Bullish Trade (based on the chart)
Buy Levels: If you want to get in on this trade, the buy level for MRNA is in three scenarios. These are marked as green color dotted lines in the daily chart.
- Buy Level #1: You can purchase the shares of MRNA if it trades above yesterday’s high, which translates to a price of $103.20.
- Buy Level #2: You can purchase the shares of MRNA if it corrects to the previous support level, which translates to a price of $95.00.
- Buy Level #3: You can purchase the shares of MRNA if it corrects to the trendline support, which translates to a price of $74.00.
Important Note: Make sure that you only enter the trade once the daily close is above the recommended price level.
TP: Our target prices for various buy levels are as follows
- The target prices for Buy Level #1 ($103.20) are $110 and $120 in the next 3 to 6 months.
- The target prices for Buy Level #2 ($95.00) are $103 and $110 in the next 3 to 6 months.
- The target prices for Buy Level #3 ($74.00) are $95 and $110 in the next 3 to 6 months.
SL: To limit risk, place a stop loss at the following levels.
- The stop loss for Buy Level #1 ($103.20) is $98.60.
- The stop loss for Buy Level #2 ($95.00) is $89.90.
- The stop loss for Buy Level #3 ($74.00) is $64.00.
Note that the stop loss is on a closing basis.
Target Upside: Our target potential upside is 7% to 49% in the next 3-6 months.
- Entry at Buy Level #1 ($103.20): For a risk of $4.60, our first target reward is $6.80 and the second target reward is $16.80. This is a nearly 1:2 and 1:4 risk-reward trade.
- Entry at Buy Level #2 ($95.00): For a risk of $5.10, our first target reward is $8.00 and the second target reward is $15.00. This is a nearly 1:2 and 1:3 risk-reward trade.
- Entry at Buy Level #3 ($74.00): For a risk of $10.00, our first target reward is $21.00 and the second target reward is $36.00. This is a nearly 1:2 and 1:4 risk-reward trade.
In other words, this trade offers 2x to 4x more potential upside than downside.
Risks to Consider: The stock may reverse its overall trend if it breaks down from the trendline support and other support levels with high volume. The sell-off of the stock could also be triggered in case of any negative news, poor earnings, issues with the vaccine, overall weakness in the market, or any regulatory changes in the sector.
Recommended Bearish Trade (based on the chart)
In case the stock breaks down from the previous high level with very high volume, it could point to an upcoming short-term correction. In that case, below are the entry levels, stop loss levels, and target prices.
Sell Level: You can take short positions on MRNA if the stochastics make a bearish crossover as it had done historically (marked as orange color triangles in the chart), and also breaks down from the previous support level of $95. This translates to a sell level of around $94.00. This level is marked as a red color dotted line in the chart.
Important Note: Make sure that you only enter the trade once the daily close is below the recommended price level.
TP: Our target prices are $78 and $74 in the next 3-6 months.
(Note: In case the stock closes below $74.00, it would break down from the trendline support, in which case the stock could correct until its 200-day MA at around $56.60)
SL: To limit risk, place a stop loss at $97.70. Note that this stop loss is on a closing basis.
Our target potential downside is 17% to 21% in the next 3-6 months.
For a risk of $3.70, our target rewards are $16.00 and $20.00. This is a nearly 1:4 and 1:6 risk-reward trade. In other words, this trade offers nearly 4x to 6x rewards compared to the risks.
Risks to Consider: The stock may reverse its overall trend if it breaks upwards from the support areas with high volume. The breakout of the stock could be triggered in case of any positive news, overall strength in the market, or any regulatory changes in its sector.
Happy Trading!
Trades of the Day Research Team
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