Capitalizing on the "V-Bottom" with UTHR

Trade of the Day

Long

United Therapeutics Corp (UTHR)

Tuesday, October 21, 2014

The Trade:

With the market in the process of an aggressive "V-bottom" recovery (see: SPY, DIA), now would be a good time to capitalize on the rapid gains of the broad market and buy in the short-term.

While the action has been volatile and unpredictable, it appears that the V-bottom still has a ways to go to recover the losses of the early-October swoon. Still, now would not be the best time to pick up something high-beta due to the "turn-on-a-dime" nature of this environment.

Instead, let's take a look at an area that has held up relatively well during the recent pull-back - Biotechnology. Looking at a chart of Biotech (XBI), it's pretty clear that the sub-industry has relatively out-performed over the past month, losing a lot less in the short-term. It has also maintained its intermediate-term up-trend that began in late-May, which is a definite plus.

Within this sub-industry, one stock that has been a strong performer this Fall is United Therapeutics Corp (UTHR). Ever since August 29th when a US District Court judge made a favorable ruling on patents over the Remodulin drug, UTHR has been on fire. The stock jumped from $90 to north of $135 (roughly +50%) in just one month before pulling back into early October.

Had the market not been crushed in early October, UTHR could be sitting pretty above $140 right now. Despite the pull-back, UTHR held at its short-term support zone and has bounced off of it this past week. The stock has exited the oversold stochastic, and is currently breaking above its major short-term moving averages.

UTHR looks much better on a chart basis than both Biotech and the general market, with a clear support zone right around $120. If the V-bottom pattern in the market continues and the pull-back is indeed over, UTHR could resume the explosive up-trending ...