A Technical Look At Biogen's Huge Rally

For investors that dabble in biotech stocks, it is common knowledge that these entities react to drug trial results and FDA approvals more so than on earnings announcements and ratings changes.

There is no better better example of this occurring than in the price action of Biogen Idec Inc BIIB shares.

Back-To-Back Quiet Sessions Ahead Of Good News

After two lackluster days of nearly identical trading ranges (Friday, November 28: $305.97 to $310.20 and Monday, December 1: $306.11 to $310.47), Biogen exploded to the upside in Tuesday's session. The catalyst for the rally: promising drug trial results for treatment of Alzheimer's disease. In addition, the company revealed that it would proceed “aggressively” with a late-stage trial.

Interestingly, the announcement took place at the Deutsche Bank BioFEST conference and was circulated by CNBC'S Meg Tirrell on Twitter around 8:30 a.m. Tuesday. It should be noted that Biogen had breached the upper end of its two-day trading range prior to the announcement at 8:27 a.m.

Those getting in ahead of the Tirrell's tweet were in a for a wild ride, one that may have exceeded their highest expectations.

Related Link: Why Investors Should Closely Watch Celgene

Immediate Reaction In Pre-Market Trading

Between 8:27 a.m. and 9:24 a.m., Biogen rallied from $312.00 all the way to $342.97. As in most cases with frenzied pre-market action, price gets a bit overdone as more and more traders react to the news -- some attempting to ride the wave and others scrambling to cover losing positions.

After peaking at $342.97, Biogen retreated to $336.35 by 9:29 a.m. Off the opening bell, longs sprang into action to lock in the quick windfall in profits. After a brief pop to $337.13 off the open, Biogen shed over $13.00 before finding support at $323.78 and attempting to rebound to over $330.00. The rebound was short-lived as the issue consolidated and closed at $328.26.

Expert Weighs In On Price Action

Christian Tharp, Marketfy Maven and author of the Five-Star Stock Watch, has acknowledged Biogen has broken out of its down channel, but remained cautious on the rally. The reason being that the resistance reached Tuesday is the underside of its prior trendline support.

Tharp stated, “This trendline has now been tested three different times as resistance. So, we know that line still matters.”

He went on to say, “A push above that trendline should lead to a run up and a test of the $350.00 level and a break above that probably means new highs. However, a fall back into the down channel would be a bearish sign.”

At time of publication, the stock was up another 3 percent at $338.16.