Biotech Vertex Pharmaceuticals (VRTX) has been struggling on the charts over the past few weeks, putting a dent in its now 10% year-to-date gain. The stock’s 5.6% post-earnings pop earlier this month has already been erased, and VRTX is now trading at its lowest level since June. The upside is that this extended pullback has the shares encountering a historically bullish area on the charts.
The “buy” signal in question is a test of the stock’s bottom 20-day Bollinger Band. After the past eight tests of this trendline, the shares of VRTX averaged a one-month gain of 5.04% after these signals, according to Schaeffer’s Senior Quantitative Analyst Rocky White. A move of similar magnitude from VRTX’s current perch of $447 would help fill the month-to-date drawdown.
Short-term put traders have been extremely bearish of late, which could trigger tailwinds should this sentiment begin to unwind. This is per the stock’s Schaeffer’s put/call open interest ratio (SOIR) of 1.26, which ranks in the 79th percentile of its annual range. There is also ample room for bull notes, with 13 covering brokerages sporting “hold” or worse recommendations on the biotech.
Plus, the equity’s Schaeffer’s Volatility Scorecard (SVS) sits at 11 (out of 100). This scorecard is used to identify which underlying stock options have historically had underpriced or overpriced options. Low SVS readings like this one point to Vertex stock having consistently realized lower volatility than its options have priced in — making the stock a potential premium-selling candidate rather than a premium-buying candidate.