Vertex Pharmaceuticals Inc. (VRTX)
February 20, 2007 Update

We take another updated look at VRTX, with at least a near-term opportunity being indicated for a very oversold stock.

First off, we revised the wave count from the earlier WW to allow for a Wave (5) top at the stock's 45.38 high of last November 30th.  While mathematically possible to count the high as a third wave peak, we'll give a little more weight to a completed 5.  The decline pattern traced out a zigzag, which typically follows the conclusion of a five, another reason we default to the more conservative wave count.  At any rate, a tradable recovery is being suggested by the completion of a full zigzag, as well a 38.2% retracement of the stock's rally from 2003, and a 21-day Put/Call ratio that has shot to 2.23 over the past 82 days of selling, at one point spiking to as high as 4.07.  Assuming the stock's impulsive breakout off its 30.05 low today represents the start of the recovery, the next question of course is how much of a recovery we might expect.  Consequently, technical and sentiment conditions are suggesting a recovery should be at hand.  The resistance areas noted above represent the potential retracements, even allowing for a possible extension of the zigzag decline following the recovery.  Wave B was a 50% retracement of Wave A, and if the stock were to follow a similar recovery pattern, a retracement to 37.70 would be possible from current levels.  35.90 represents the 38.2% retracement, and 38.52 the 61.8% retracement.   Lower Fibonacci resistance levels are also noted.  31.50 can be used with as an entry, with a stop at 29.

Although we're looking at this as mostly a near-term play, April options are pricey, and July is much better for Delta.  The July 2007 $35 Call (symbol VQRGG), which is still a few dollars OTM, is nevertheless offering a Delta of 0.51, which is quite good.  The contract is currently selling for $4.10.  

©Copyright 2007 Tony Carrion.  All content presented is the exclusive property of Market Harmonics. com, which is owned & operated by T. Carrion & Co., LLC, and may not be duplicated or distributed without the express written consent of the author.