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 Ocugen Inc. (NASDAQ: OCGN), the clinical-stage biopharmaceutical company with a strategic partnership with CanSino Biologics Inc. for gene therapy co-development and manufacturing; and Bharat Biotech for the commercialization of COVAXIN in the United States market. COVAXIN is an inactivated SARS-CoV-2 vaccine made up of killed coronaviruses, making it safe to be injected into the body.
Why is OCGN trending?
Ocugen is developing COVAXIN, Bharat Biotech’s COVID-19 vaccine candidate, for the U.S. market. In the recently shared second interim results of Phase 3 clinical trial, COVAXIN had demonstrated 78% overall efficacy and 100% in severe COVID-19 disease (including hospitalization).
Ocugen Inc. has now announced that in a new study, scientists at the Indian Council of Medical Research (ICMR)-National Institute of Virology have found that the SARS-CoV-2 vaccine, COVAXIN, demonstrated potential effectiveness against three key variants of SARS-CoV-2.
In the ICMR studies, COVAXIN-vaccinated sera effectively neutralized several SARS-CoV-2 variants (B.1.617 (India, double mutant), B.1.1.7 (United Kingdom), B.1.1.28 (Brazil P2), and heterologous strain) in an in-vitro plaque reduction neutralization assay. It may be noted that the Brazilian variant, B1.128.2, contains the E484K mutation that was found in New York. These studies suggest that COVAXIN vaccination may be effective against multiple SARS-CoV-2 variants.
The Ocugen team announced that it has submitted a comprehensive drug master file with the U.S. Food and Drug Administration (FDA) and is currently diligently preparing the Emergency Use Authorization (EUA) application. Once the approval of the lifesaving drug goes through, the price could surge even higher. COVAXIN is currently approved for use in nine countries.
However, it may be noted that Bharat Biotech maintains a 55% stake in any U.S. profits versus 45% for OCGN, plus all ex-U.S. profits.
Here’s how to trade OCGN right now.
OCGN Chart
On analysis, there are multiple bullish indications on the daily chart of OCGN.
#1 Stock On An Uptrend: The daily chart shows that the stock is currently on an uptrend, as it has been forming higher highs and higher lows for the past several weeks. 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.
Daily Chart – OCGN
#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 ADX and DI: The ADX line has started to move up from below –DI and +DI lines. The +DI line and the ADX lines are also currently above the –DI line. This indicates possible bullishness.
#5 Fibonacci Support: Usually, after an up-move, stocks retrace to any of the key Fibonacci levels before surging back again. The stock’s daily chart shows that it had taken support at the 23.60% Fibonacci support level of the upmove and started to move higher. This is marked in blue color. An upmove from a Fibonacci support level is usually a bullish indication.
Recommended Bullish Trade (based on the chart)
Buy Levels: If you want to get in on this trade, the buy level for OCGN 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 OCGN if it trades near yesterday’s high, at a price of $15.80.
- Buy Level #2: You can purchase the shares of OCGN if it corrects to the previous support level, which translates to a price of $12.10.
- Buy Level #3: You can purchase the shares of OCGN if it corrects to the trendline support, which translates to a price of $5.30.
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 ($15.80) are $20 and $25 in the next 3 to 6 months.
- The target prices for Buy Level #2 ($12.10) are $16 and $20 in the next 3 to 6 months.
- The target prices for Buy Level #3 ($5.30) are $10 and $16 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 ($15.80) is $13.20.
- The stop loss for Buy Level #2 ($12.10) is $9.80.
- The stop loss for Buy Level #3 ($5.30) is $3.50.
Note that the stop loss is on a closing basis.
Target Upside: Our target potential upside is 26% to 202% in the next 3-6 months.
- Entry at Buy Level #1 ($15.80): For a risk of $2.60, our first target reward is $4.20 and the second target reward is $9.20. This is a nearly 1:2 and 1:4 risk-reward trade.
- Entry at Buy Level #2 ($12.10): For a risk of $2.30, our first target reward is $3.90 and the second target reward is $7.90. This is a nearly 1:2 and 1:3 risk-reward trade.
- Entry at Buy Level #3 ($5.30): For a risk of $1.80, our first target reward is $5.30 and the second target reward is $10.70. This is a nearly 1:3 and 1:6 risk-reward trade.
In other words, this trade offers 2x to 6x 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 OCGN if the stock breaks down from the previous 50% Fibonacci support level of $10.15. This translates to a sell level of around $9.60. 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 $7.00 and $5.00 in the next 3-6 months.
SL: To limit risk, place a stop loss at $11.00. Note that this stop loss is on a closing basis.
Our target potential downside is 27% to 48% in the next 3-6 months.
For a risk of $1.40, our target rewards are $2.60 and $4.60. This is a nearly 1:2 and 1:3 risk-reward trade. In other words, this trade offers nearly 2x to 3x 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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