Ozempic sets the stage, but can Novo’s latest drug be a real moneymaker? | chart watcher

When you run a StockCharts scan for Runaway Gaps (Runaway Gap Ups) You may have found only 12 stocks on Thursday. The most notable name among them was Novo Nordisk AS (NVO), a Danish pharmaceutical company best known as the developer of Ozempic, a popular second-line diabetes treatment.

NVO has jumped more than 9%, already up 26% since January, after reporting successful initial trial results for a new weight-loss drug, amycretin. Participants who took the drug achieved an average weight loss reduction of 13.1% over 12 weeks.

Wall Street sentiment is betting on the possibility that this new drug may or may not be as big as Ozempic, and some investors want to get in early. It’s easy to see why just by looking at the weekly chart spanning five years, when Ozempic was mainstreamed not only as a diabetes treatment but also as a weight loss drug.

Chart 1: Weekly chart of NOVO. Notice the considerable strength and momentum of the five-year upward trend. These days, the need to lose weight is virtually “inelastic.”

Looking at the 50-week, 100-week, and 200-week simple moving averagesNot only have they been sailing full steam ahead since the Ozempic ads began to infiltrate mainstream consciousness, but NVO seems to have stretched MA to its breaking point (if you can imagine such a thing), defying gravity just a little. This suggests a potential downturn (yet).

The daily picture provides a clearer picture of the strength of NOV’s performance as well as potential entry points if you want to invest for the long term.

Chart 2. NVO daily chart. Not only does it look like a miniature version of a long-term weekly chart, but it also shows similar trends related to the broader market, its sector and industry.

A runaway gap, characterized by a strong bullish continuation pattern, is located in the middle of the trend. But trends can only be identified by looking back. We’re not there yet. So are we seeing a burnout gap on the verge of a downturn?

Note the difference between the price surge of NOV and the Funds Flow Index (MFI). reading. As a type of volume-weighted RSI and indicator that measures momentum and predicts a possible reversal, the difference we are seeing suggests a potential decline in the NVO stock price.

Nonetheless, note NVO’s outperformance relative to the S&P 500 (+17%), its own sector via SPDR Health Care Select Sector Fund XLV (+20%), and the Dow Jones US Pharmaceuticals Index ($DJUSPR) (+23%) do. .

Ichimoku Cloud’s 50-day SMA and Kumo segment It is constructed to indicate potential landing sites in the event of a decline. And if NVO retreats now, drawing a Fibonacci retracement from the October 2023 low will result in a 50% level at $112.50. So we’re mostly looking at the scope of what’s included within “the cloud.”

conclusion

But here you really have to think for yourself. Ozempic fever has led to a seven-year upward trend for NVO, and arguably, it is not over yet. The most recent surge was driven by sentiment and speculation that amicretin would support and continue NVO’s winning streak. The $112 to $118 range could be a reasonable “technical” entry point, but it is not undervalued as its price-to-growth (PEG) ratio is 4.87.

How to run a StockCharts scan

Finding the right stocks and exchange-traded funds (ETFs) to trade can be tricky. But with a little effort, you can create a strategy that identifies a few promising prospects.

Fortunately, it’s not that difficult to learn how to do. Please follow these steps:

• Select (or create) several different scan criteria.
• Run these checks regularly.
• Analyze the stocks (or ETFs) identified by your scan.
• Determine your overall trading setup (including access and liquidation criteria).

StockCharts Scan Engine This is useful for narrowing down stocks and ETFs that fit your specific needs. It includes many ready-made scans that are a good starting point. Once you become familiar with these scans, you can adjust them or create new scans that fit your trading goals.

For example, this article was flagged by a Runaway Gap Ups scan. As you can imagine, there are many more tests that can be run. Try the StockCharts Sample Scan Library (Charts & Tools > Sample Scan Library)