EXEL – In A Consolidation Mode

EXEL “Exelixis” had an impressive uptrend starting in June 2012, anticipating the FDA reply for the NDA filling & priority review, starting from the $4.40 area, reaching the $6.95 point on the day of the announcement that the FDA accepted its potential medullary thyroid cancer (MTC) treatment, cabozantinib, for priority review , which is shorter time frame than the usual 10 months for most drugs, The deadline for FDA’s decision is November 29th.

On the day of the NDA acceptance, the price gap up reaching $6.95, but then the profit taking cause a sell off closing the day at a minimal upside.
We as a biotech traders, used to see this kind of sell the news, but the price kept declining in the next 4 days raising a “red flag” and on Monday 08/04 just before the markets opening $EXEL announced proposed concurrent public offerings of Common Stock and Convertible Debt, and the price get a hit again on the news, declining till the company announced the pricing of the offering.
The deal size was increased to 30M shares from 20M shares, and priced at $4.25, $EXEL had a huge volume around 70M shares trading in the PM & open market, this huge volume had created a strong base and support around the $4.30 point, and creating a good trade opportunity.

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The Trade
As we saw the price touching $4.30 area and start trading side way during the last 12 trading days, it looks like a consolidation area as the volume steadily decreasing.
Consolidation is a healthy mode for stock like $EXEL which just had a large price moves, we can already see the positive momentum as the indicators start changing direction and leaving the “Over-Sold” area.
We can see clearly the positive divergence in the RSI indicator, breaking out the oversold line at 30 reaching 34.4, also the positive change in the MACD, very close for the crossing above the moving average.
This consolidation offer us an easy pick, with a limited risk,as the price is moving in a horizontal channel between the 2 line (gray on the chart) $4.19 & $4.47, so we can put a stop lose just a few cents below the support line.

The near term catalyst of the coming FDA AdCom on 11/09 followed by PDUFA date on 11/29 will bring lots of attention around the stock, and will help the price to get a run-up, but first, breakout the upper line of the channel @ $4.47, then heading north & try to move above the 200MA around the $5 point.

My first target is filling the gap at the $5.57, followed by the 2nd target the weekly resistance line @ $5.81.
The main question, can we reach the last high of $6.95 ahead of the PDUFA date ?
It mostly depend on the Advisory Panel vote, if it positive and they recommended approval, then we can see a higher high.

Second option to trade $EXEL is with call options, as the Nov calls are just behind the AdCom decision, so we can pick ITM $3 or $4 calls.

Disclosure: Long $EXEL Shares & Nov $4 & $3 calls

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