Celgene: Long Call Diagonal

Looking at the weekly chart, I believe an ABC correction has ended and we are starting a new bull trend. I am basing this hypothesis on the fact that three very key fibonacci retracements and extensions on the weekly chart point 50.70-51.70 price level, indicating that a major correct to the trend should be in that area. 2 weeks ago we saw the stock hit that price and has bounced since then.

Fibonacci time retracements also indicate the correction is over. Finally, the Stoch made a bullish reversal right around the bottom of wave C. Thus, the weekly chart looks very bullish, indicating this is a strong buy. One key level to watch is the 55.80 price level since this has proved to be a major resistance/support level on the 3 year weekly chart (not shown). If we can break above the 55.80 resistance and maintain that as support, the bull trend will be confirmed. The hourly chart (below) however shows that 55.80 resistance is still holding strong.

Daily chart also showing strong bullish trends. The price gap is important because it has created a void which, if the price falls, could be filled in a relatively short time span. Additionally, there has been a bearish reversal on the Stoch which is of some concern.



The two key things to note on the hourly chart are:
1. How cleanly we bounced off the 55.80 level today. The price is going up, up, up and then all of a sudden hits the resistance and cannot hold on at all.
2. The significant advance today because of a couple of upgrades. I feel the stock may be overbought right now and could see some fall back.



Finally, found this chart on Shaeffer's Investment Research which shows how the P/C ratio fell significantly on 9/17. This is of course very bullish. The chart shows the stock price's inverse sensitivity to the P/C ratio.

In summary, I am bullish on Celgene contingent on the price breaking the 55.80 resistance and confirming the breakout. After doing some volatility analysis, Celgene is a good candidate for a Long diagonal.

Buy Jan10 55 Call
Sell Oct09 60 Call

I will post the details of the trade if I decide to go long.

Edit: I just noticed that the P/C ratio graph is different from the one I saw. It shows how the P/C shot up the next day again as the price shot up. Subsequently, the price has dropped. Look for a follow up on how I managed this trade.