Bristol-Myers to Resubmit Myeloma-Drug Bid to FDA - Here’s the Trade

Buy Bristol-Myers on weakness to its weekly value level at $60.75 and reduce holdings on strength to its monthly risky level at $69.39.
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Bristol-Myers Squibb  (BMY) - Get Report and Bluebird Bio  (BLUE) - Get Report in a couple of months will resubmit their bid for an experimental multiple-myeloma treatment to the U.S. Food and Drug Administration for marketing clearance.

Meantime, how should investors trade the stock of Bristol-Myers, the New York health-care icon? 

Bristol-Myers and Bluebird, the Cambridge, Mass., clinical-state biotech, plan to resubmit their application in July. They'd submitted it in March and said today that the agency had turned it down. For more details on this situation read this story that’s posted on TheStreet.com.

BMY stock is rising above its weekly value level at $60.75 in today’s trading.

The stock opened Wednesday at $63.17, down 1.6% year to date and 7.6% below its 52-week high of $68.34, set on Jan. 22. 

The stock is also in bull-market territory 38% above its March 23 low at $45.76.

When a major pharmaceutical company has a major medical product rejected by the FDA, the stock should be under pressure. 

I assume that Bristol-Myers is confident that clearance will occur when the companies resubmit in July. 

Investors, too, seem to be betting that the agency will clear the drug. If the agency's decision disappoints investors, however, the downside is to the stock's semiannual value level at $49.

The Daily Chart for Bristol-Myers

Daily Chart for Bristol-Myers

Daily Chart for Bristol-Myers

Courtesy of Refinitiv XENITH

Bristol-Myers has been above a golden cross since Oct. 4, when the 50-day simple moving average rose above the 200-day simple moving average. 

This buy signal indicates that higher prices will follow.

This signal tracked the stock to its 52-week high of $68.49 on Jan. 22.

The stock fell below its 50-day SMA on Feb. 24. Then the 200-day SMA failed to hold on March 13.

At the March 23 low of $45.76 the stock went below its semiannual pivot at $49. This was a level at which to buy on weakness.

As the second quarter began, the stock was above its quarterly value level at $45.38.

The stock moved back above its 200-day SMA on April 3, then above the 50-day SMA on April 14.

Note how the golden cross almost ended - but the negative crossover did not occur as the 50-day SMA stayed above the 200-day SMA.

As May began, the stock paused briefly at its monthly pivot at $60.75, which is now a value level.

The Weekly Chart for Bristol-Myers

Weekly Chart for Bristol-Myers

Weekly Chart for Bristol-Myers

 Courtesy of Refinitiv XENITH

The weekly chart for Bristol-Myers is positive, with the stock above its five-week modified moving average of $60.28.

The stock has been above its 200-week simple moving average, or reversion to the mean, since the week of April 3. This level is a support at $56.11.

The 12x3x3 weekly slow stochastic reading is projected to rise to 66.58 this week from 61.72 on May 8.

At the January high this reading was above 90, which put the stock in an inflating parabolic bubble formation. This was a warning for the weakness seen until March 23.

Trading Strategy: Buy Bristol-Myers on weakness to its weekly value level at $60.75 and reduce holdings on strength to its monthly risky level at $69.39.

How to use my value levels and risky levels:

The closes on Dec. 31, 2019, were inputs to my proprietary analytics. Semiannual and annual levels remain on the charts. Each uses the past nine closes in these time horizons.

Second quarter 2020 levels were set established based upon the March 31 closes. The monthly level for May was based upon the close on April 30.

New weekly levels are calculated after the end of each week.

New quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year. Annual levels are in play all year long.

My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in.

To capture share price volatility investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.

How to use 12x3x3 Weekly Slow Stochastic Readings:

My choice of using 12x3x3 weekly slow stochastic readings was based upon back-testing many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.

The stochastic reading covers the past 12 weeks of highs, lows and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading and I found that the slow reading worked the best.

The stochastic reading scales between 00.00 and 100.00 with readings above 80.00 considered overbought and readings below 20.00 considered oversold.

A reading above 90.00 is considered an “inflating parabolic bubble” formation that is typically followed by a decline of 10% to 20% over the next three to five months.

A reading below 10.00 is considered as being “too cheap to ignore” which typically is followed by gains of 10% to 20% over the next three to five months.

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.