The US government has agreed to pay $2 billion dollars for up to 600 million doses of a vaccine against COVID-19 that Pfizer (NYSE:PFE) is developing, together with German biotechnology firm BioNtech (NASDAQ:BNTX), if it proves to be safe and effective.
The contract for 100 million doses of the vaccine is enough to inoculate 50 million people, based on a two-dose course of treatment, Reuters reported. If it's effective the government has an option to procure the remaining dosages.
Shares of Pfizer, the biggest US drugmaker, closed up 5.1% yesterday, marking the third rising gap this month for the stock, and the biggest one-day gain in percentage terms since Mar. 30. But this move is different. The price used the 200-DMA as a springboard to break above a downtrend line that had been in place for over a year.
However, the downtrend lines in place since November 2018 still loom above. Also, although yesterday’s candle didn’t develop an ideal hanging man—only bearish if it leads to a follow-up candle which forms below the previous day's closing price—this candle’s location makes the stock susceptible to a bearish retaliation, having reached the highs seen in late April and early May.
The RSI jumped into overbought territory to 75, its highest since January, right before the stock plunged 30% over the ensuing nine weeks.
All this paints a picture of an asset that's ripe for profit-taking. Cautious investors might want to wait for a pullback, or at least a period of consolidation, to limit exposure to any potential whipsaw action.
Trading Strategies
Conservative traders would wait for the stock to cross above the longer downtrend line that has run since 2018 that would then act as support, within an ascending series of peaks and troughs, establishing an uptrend.
Moderate traders may risk a small, long position upon crossing the psychological $40 round-number level, while posting a new high above that of Apr. 28 at $39.22.
Aggressive traders may enter a contrarian short, if they time it right, understand the risk, can afford the potential loss, and have a suitable temperament.
Trade Sample: Aggressive Short Position
- Entry: $39
- Stop-Loss: $40
- Risk: $1
- Target: $36
- Risk-Reward Ratio: 1:3
- Variance: Halving the risk, with a $39.50 stop-loss, doubles the risk-reward ratio to 1:6, while increasing the risk of the stop-loss being hit.
Note: This is just a sample, not the lesson. For that, you must read the post carefully, ensuring you understand the complex nature of markets and trading them. The sample is only to demonstrate the key factors in a coherent trading plan. Feel free to change the parameters to suit you personally. If you lose a trade, don’t lose heart; if you win a trade, don’t get ahead of yourself. Like in any other business, a traders must survive, to be able to maintain their account and be profitable in the long-term, by getting on the side of statistics.