How to Trade 5 Biotech Stocks After a Fall -- Plus Jim Cramer's Take

As 2016 began, TheStreet's Jim Cramer named 38 "anointed" stocks he thought would perform well in 2016. Among these are five biotech companies, Amgen (AMGN) - Get Report , Biogen (BIIB) - Get Report , Celgene (CELG) - Get Report , Gilead Sciences (GILD) - Get Report and Regeneron Pharmaceuticals (REGN) - Get Report .

On Friday, Jim Cramer and Research Director Jack Mohr commented on Action Alerts PLUS holding Biogen: "Shares traded solidly lower this week as investors shifted away from risk. Although we recognize shares of Biogen could be considered 'cheap,' we believe the current assessment is fair." The company has made bets on "blockbuster" drugs, but the results aren't guaranteed, they wrote.

Biogen is a holding in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells BIIB? Learn more now.

Fundamentally, each biotech company has its own pipeline of drugs and its own regulatory milestones. Investors need to be aware of the nuances for each stock. 

Investors involved in biotech may think that technical analysis play no role in this industry. Nothing could be further from the truth if the stock has been publicly traded for nine years or more.

Price patterns on technical charts and the resulting key levels can be used by prudent investors who want to trade stock-specific volatility. Investors who believe in a biotech company regardless of negative news should learn how to buy on weakness. Investors should be astute about the opportunity to sell on strength on progress to meeting drug-development milestones.

Amgen reported quarterly results on April 28 and beat earnings estimates, but responded by continuing to trade sideways to down. It stayed above its 200-day simple moving average of $155.03.

Biogen reported quarterly results on April 21 and beat earnings estimates. Strength to $286.12 on April 25 stayed below its 200-day simple moving average, now at $286.21.

Celgene reported quarterly results on April 28 and beat earnings estimates. Share price weakness held its 50-day simple moving average of $103.46.

Gilead Sciences reported quarterly results on April 28 and missed earnings estimates. It was already below its 200-day simple moving average of $109.99 and plunged below its 50-day simple moving average of $93.15.

Regeneron will report quarterly results on May 5 before the opening bell. Analysts expect the company to earn $1.37 per share. The stock is below its 50-day simple moving average of $391.60, but above its March 17 low of $348.96.

Here's a scorecard for the five key biotech stocks, followed by their weekly charts and key trading levels.

Here's the weekly chart for Amgen.

Courtesy of MetaStock Xenith

The weekly charts show a red line through the price bars, marking the key weekly moving average (a five-week modified moving average). The green line is the 200-week simple moving average, the "reversion to the mean." The study in red along the bottom of the chart is weekly momentum (a 12x3x3 weekly slow stochastic), which scales between 00.00 and 100.00, where readings above 80.00 indicate overbought and readings below 20.00 indicate oversold. A negative weekly chart shows the stock below its key weekly moving average, with weekly momentum declining below 80.00 in a trend toward 20.00.

The weekly chart for Amgen ($158.99 close on Monday) is positive but overbought, with the stock above its key weekly moving average of $156.21 and well above its 200-week simple moving average of $127.22. The weekly momentum reading is projected to rise to 78.58 this week, up from 76.76 on April 29, approaching the overbought threshold of 80.00.

Investors looking to buy Amgen should consider doing so on weakness to $157.48 and $155.21, which are key levels on technical charts until the end of 2016 and the end of May, respectively.

Investors looking to reduce holdings should consider doing so on strength to $162.88 and $172.66, which are key levels on technical charts until the end of this week and the end of June, respectively.

Here's the weekly chart for Biogen.

Courtesy of MetaStock Xenith

The weekly chart for Biogen ($273.69 close on Monday) is positive, with the stock above its key weekly moving average of $270.23, but is just below its 200-week simple moving average of $274.27. The weekly momentum reading is projected to rise to 67.19 this week, up from 60.17 on April 29.

Investors looking to buy Biogen should consider doing so on weakness to $268.90 and $262.32, which are key levels on technical charts until the end of this week and the end of May, respectively.

Investors looking to reduce holdings should consider doing so on strength to $311.15, which is a key level on technical charts until the end of 2016.

Here's the weekly chart for Celgene.

Courtesy of MetaStock Xenith

The weekly chart for Celgene ($104.97 close on Monday) is neutral, with the stock just a dime above its key weekly moving average of $104.87 and above its 200-week simple moving average of $85.20. The weekly momentum reading is projected to rise to 67.01 this week, up from 66.07 on April 29.

Investors looking to buy Celgene should consider doing so on weakness to $97.06, which is a key level on technical charts until the end of May.

Investors looking to reduce holdings should consider doing so on strength to $108.88, which is a key level on technical charts until the end of 2016.

Here's the weekly chart for Gilead Sciences.

Courtesy of MetaStock Xenith

The weekly chart for Gilead Sciences ($89.00 close on Monday) is negative, with the stock below its key weekly moving average of $92.74 and above its 200-week simple moving average of $78.31. The weekly momentum reading is projected to decline to 63.29 this week, down from 72.63 on April 29.

Investors looking to buy Gilead should consider doing so on weakness to $86.83 and $84.26, which are key levels on technical charts until the end of 2016 and the end of May, respectively.

Investors looking to reduce holdings should consider doing so on strength to $99.03, which is a key level on technical charts until the end of this week.

Here's the weekly chart for Regeneron.

Courtesy of MetaStock Xenith

The weekly chart for Regeneron ($384.52 close on Monday) is neutral, with the stock below its key weekly moving average of $395.09 and above its 200-week simple moving average of $336.48. The weekly momentum reading is projected to rise to 40.97 this week, up from 38.61 on April 29.

Investors looking to buy Regeneron should consider doing so on weakness to $381.58 and $371.10, which are key levels on technical charts until the end of May and the end of this week, respectively.

Investors looking to reduce holdings should consider doing so on strength to $436.54, which is a key level on technical charts until the end of 2016.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.