Wednesday, January 21, 2009

Biovail Corp. (TSX:BVF)

Although the stock market has yet to deliver convincing evidence of a bottom, there are opportunities for brave investors to once again enter the water. Gold stocks attract most of the trend and momentum crowd, but another sector has shown relative strength gains in recent weeks: health care. Among the growing number of stocks that have signaled short-term trend improvement are pharmaceuticals. A leading Canadian name in this space is Biovail Corp. (TSX:BVF). The stock’s recent strength has triggered a Stock Trends Bullish Crossover indicator – signalling a crossover of the 13-week moving averge above the 40-week moving average. Intermediate to long-term traders and investors can use this crossover as a buy signal.

One of the most important measures of a stock’s performance is how it is doing relative to the benchmark market index. Regardless of the market direction, a stock should be performing better than the market as a whole. The Stock Trends Relative Strength Indicator (RSI) helps identify these performers. The ajacent graph shows how the Stock Trends indicators categorized the trend and price momentum of BVF over the past two years. The Relative Strength Indicator revealed the building market support for BVF dating from last September when the Stock Trends RSI started trending positively. This rising RSI pattern reveals the stocks stalwart appeal in the face of a tough bear market. The share price of Biovail held fairly steady in the autumn while the market floundered.

The Stock Trends trend indicator shifted to Weak Bearish in December, alerting investors of the stock’s modest move above the intermediate-term trend line (13-week moving average). However, it was the price breakout to $13.50 in the first full trading week of 2009 that moved the trend line upward. This price advance through resistance at $11.75 was a crucial move that opens up the stock’s bullish trade potential.

If BVF’s breakout is to be sustained, improved trading volume will lend a helping hand. Look for increased trading activity in BVF as we move further into this quarter. The bullish prospects of BVF improve with the market, and especially with expanded leadership potential from other names in the sector. On the blue chip end, Pfizer Inc. (NYSE:PFE) has outperformed the S&P 500 by 14% over the past three months and is one of only two Dow Jones Industrial stocks currently in a Stock Trends Weak Bearish trend. While continued relative performance gains for PFE will help push stocks like BVF, it is the small cap resurgance of biotech stocks that will attract additional money flows to the sector. Investors now holding BVF can hope to book a 30% gain if the stock achieves a sustained rally to the $18 level.

As much as the breakout past $11.75 opened the lid on a BVF trade, resistance at the $14.75 level could be a tough ceiling to move past. The stock may simply extend its trading range of the past year. Only a strong advance through $15 will diminish this concern. Nevertheless, BVF’s chart gives investors key price points to monitor. Failure to move above $15 should signal an exit.
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