Why Moderna Stock Faces a Tough Slog Ahead

Stocks to buy

Overall, Moderna (NASDAQ:MRNA) stock has made headlines for almost a year. Ever since the novel coronavirus outbreak started, the hunt for a vaccine was afoot.

The Moderna (MRNA) logo surrounded by syringes, pills and disposable face masks.

Source: Ascannio / Shutterstock.com

That said, Pfizer (NYSE:PFE), MRNA and AstraZeneca (NASDAQ:AZN) have had their victory headlines already. There are a slew of others still waiting like Novavax (NASDAQ:NVAX) to name one more. Trading the stocks is tricky when headlines are looming. Everyone on Main Street and Wall Street has been anticipating them, so it is difficult to ascertain what’s already priced into MRNA stock.

The best way I know to deal with these situations is to simply trade the price action at hand. In the middle of December, and just as MRNA stock had its “hurray headline,” I warned of a sell-the-news effect. That worked out almost perfectly as I predicted it, and my thesis back then was to wait and buy the dip. Investors who heeded that call had the opportunity to buy it 25% cheaper near $100 per share. It has since rallied about 40%, so the easy work is done. The bulls have hard work to do from here so we are back to not having a slam dunk plan of action.

Moreover, what it has going for it is that this group of stocks has very avid fans. They are emotional about their equities, so I am sure that I will offend a few today. Trust me, that it’s not my intention, as I am merely commenting on the shorter term opportunity in Moderna stock.

Sure, I recognize the great things the company has accomplished and so fast. The world is going to be a better place for it, so they are heroes. I have family members on the front lines fighting the coronavirus outbreak, and they got their “jabs” already. And I thank Moderna for keeping them safe.

Nonetheless, my call today is that the stock will hit resistance as it approaches $150 per share. The zone will have sellers lurking. This is different than to say that the long term prospects are bad. That part only time will tell. Meanwhile, I use the information in the charts to avoid potential pitfalls. In fact, the difficulty that I see above is also the opportunity. If the bulls can take it out, then it will serve as a catalyst for more greens.

If I own shares, I could wait it out — especially if they are investments not trades. I could even put my assets to work by selling covered calls (never naked calls). This way I would create my own dividends while I wait for more upside to materialize. Meanwhile, those looking to buy shares should do so in small batches. Leaving room to manage the risk is a smart thing to do when markets are near highs.

Fundamentally, MRNA Stock Is Fine

Fundamentally, nothing has changed. Moderna stock success still depends on future prospects, not current actuals. Its investors need to have faith and an iron stomach to hold it through thick and thin. Biotech stocks under normal circumstances are risky. Add to it what this pandemic has created, and you get the wildest action ever.

To make it easier, I always revert to the actual price action to give me the clues I need. They say that “price is truth,” and that actually lives in the charts. Most of the trading is done by machines and they use no sentiment, just prior prices and math.

My thesis is that the bulls need to get above last week’s levels to create momentum. They will need it to hold above the resistance at $142 per share. A breakout from that would spark a rally that could have $14 from there. Yes, there is an upside opportunity, but it won’t be easy.

My bet is that there is a lot of supply above current levels, so the upside will be a slog. Long term, the improvement in fundamentals could bring about more upside. But my comments today focus more on the shorter term results.

Overall, the world needs Moderna to succeed. That’s how we will overcome this nasty virus. The whole stock market is too far ahead where it should be. And if things were so great, the government wouldn’t be spending trillions of dollars in stimulus. Needing this much aid on main street should mean that Wall Street should be somewhat demure about it. Instead, there is a raging party going on like it’s 1999. However, this froth in equities could blow off soon and put extrinsic downside pressure on all stocks  — including this one.

On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. 

Nicolas Chahine is the managing director of SellSpreads.com.

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