Stay Opportunistic, Yet Vigilant

Quite a few biotechnology and healthcare stocks have suddenly caught fire of late, with Karuna Therapeutics Inc. (KRTX) the face of the current rally, on an improbable and exhilarating run this week from $17 to $152.  

The party may have more fun yet to come, though we know biotech always presents its own unique set of risks. On the one hand, we do not want to turn a blind eye to such strong momentum. But on the there hand we do not want to develop sloppy habits and use the sector momentum as a crutch or excuse to stray too far from discipline. Still, the IBB XBI and XLV sector ETFs for biotech and healthcare have been too strong to ignore. 

The Intercept Pharmaceuticals Inc. (ICPT) setup, below on its daily chart, serves as a good example of the "Stay opportunistic, yet vigilant" mindset we want to adopt into the current biotech rally. 

Clearly, ICPT is attempting to turn the ship around, as most bios are, after several quarters if not years of lagging behind market rallies. The first major battleground for long-term turnarounds usually occurs at a declining 200-day moving average, which is the yellow line on my chart and is a rather significant point of reference from a long-term perspective. 

ICPT recent rallied up to its declining 200-day but did not face immediate or stiff rejection, which we often see with stocks trying to clear a still-declining 200-day. The reason being--There is typically so much "supply" or overhead resistance, which means many trapped longs from earlier in the downtrend or correction who, psychologically, are more likely to sell than buy more or hold into these rallies which have previously failed miserably. 

However, ICPT is enjoying good sector momentum and an overall bull market on the major indices as we head into the seasonally bullish holiday period. Moreover, as you can see, the stock based tightly at the 200-day moving average and it pushing above it today. 

As long as that 200-day holds, and barring some very unlucky surprise trial or FDA announcements, ICPT seems like one of those names which benefit from the biotech party in progress.