NEW YORK (TheStreet) -- There are plenty of biotech and drug stocks trading for less than $5 that appear like they might outperform the market going forward.
This is a perilous place to play, however. Anytime I purchase a "cheap" stock in this group, I do so with money I can afford to lose.
One stock I purchased in the past few weeks is
. This is a clinical-stage biopharmaceutical company with a focus on developing recombinant vaccines for infectious diseases. It is one of the few companies still working on vaccines for respiratory syncytial virus infections -- a potentially lucrative area.
This stock's charts are appealing, as you'll see on the following pages.
On the long-term chart, you can see two previous high-volume highs remaining. Usually, untested high-volume get retested, and neither of these has. But this is the long-term chart, so it could be a long time before it happens -- if it happens.
Moving to the intermediate term, you can see a large saucer type bottom that has formed over the past seven months. Combining the classical bottoming pattern with the anchor bar support zone, you can get a pretty good feel for the risk level that has to be taken. There is resistance from the $2.92 to $3.15 range, but if Novavax can trade higher and stay above that area, it could make a run for the 5-year highs at the $8-plus level. That's the longer-term potential.
I wouldn't buy at the current price. If anything, I would buy just a little to get it on my screen. These small biotech stocks are volatile. Unless you are daytrading, they should be entered on pullbacks, not strength. You want to do the bulk of your buying in the support zone. The daily chart shows this clearly.
On this chart, you can see the strong anchor bars whose intersection provides good support. Looking back at the weekly chart, you can see the overlap of support between the two time frames. Having two different time frames broadcasting the same technical story is always a good thing.
In summary, Novavax may offer a cheap ticket to higher prices. It's a biotech in the clinical phase and is therefore a risky trade. The technical picture does line up well and buying the stock as it retraces into support makes for a reasonable trade.
Until next time, keep trading the charts!
At the time of publication, Little was long shares of Novavax, though positions can change at any time.
L.A. Little, author, professional trader and money manager, writes daily on
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His background includes degrees in philosophy, computer science, computer information systems and telecommunications. With a trading philosophy centered on capital protection first and the accumulation of consistent gains over time, L.A. espouses a simplistic technical approach to trading the markets that is a throwback to the days of past. With a focus on swing points and the qualification of trends, L.A. provides a breath of fresh air to an otherwise crowded room of derivative indicators with the emphasis on technical minutiae.