Charts Suggest La Jolla Pharmaceutical Will Fall 50%

By Unknown Monday, January 4, 2016
Shares of La Jolla Pharmaceutical returned 50% in 2015, impressive considering the S&P was flat and the biotech index rose 11% during the same time period. But from a technical perspective, it doesn't look like shares of La Jolla will fare as well in 2016. Shares of LJPC are poised to fall up to 50% if this bearish head and shoulders pattern plays out.

The head and shoulders pattern has been six months in the making, and after shares fell more than 7% to start off the new year, they dangerously approached dual neckline and horizontal support in the $24 - $25 range. A decisive break below that support range would lead to a measured move price target of $10 - $11.

Besides the bearish head and shoulders pattern, LJPC closed below its 200 day moving average and 50 week moving average today. Both RSI and MACD are declining, and volume is drying up. The P&F chart has a $15 bearish price objective.

Fundamentally, this is a volatile biotech stock that has several binary catalysts in the future, which can dramatically move the stock in either direction. Caution is advised. Heavy insider buying at levels higher than today's prices is bullish, but in the end, price is truth, and it's currently breaking down.

Consider purchasing the March 2016 $20 puts to profit on potential continued weakness in LJPC.

I currently have no position in LJPC, but am monitoring the stock and may take a bearish position via put options.
The Wall Street Fox

The Wall Street Fox utilizes fundamental and technical analysis to generate investment ideas. TWSF holds a MBA, and is currently preparing for the Chartered Market Technician (CMT) designation.

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