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How to Profit from the Swine Flu Panic


Certain stocks will jump -- even if only marginally connected to the pandemic.

Like many other traders, I had a great idea in the back of my mind, just waiting to be researched and put into action. I knew that hysteria regarding the Swine Flu would cause certain stocks to jump -- even if they were only remotely attached to the actual pandemic at hand. With the World Health Organization ramping up the media coverage and exposure of the current outbreak, I decided it was time to anticipate this fall's flu season. While I trade only the technicals, I also knew that the panic of the general public would manifest itself in time in the charts.

What started out as an article investigating Swine Flu-related stocks ended up a mixed bag of pharma stocks that were worthy of a second look as they continue to shape good patterns. I have also thrown in a couple of highly speculative (and I do mean speculative) charts that are closely related to the H1N1 issue at hand. Today's review isn't so much a look at stocks from which to make money when Swine Flu is back, front and center in the US, but more a look at some possible trades that could set up in the next few weeks to months. Make your list, and keep your powder dry.

Mylan Labs (MYL)

Mylan popped on my radar when I tried to connect them as an American maker and supplier of the Swiss-based Roche's flu remedy Tamiflu. Mylan is one of the biggest generic-drug makers out there, and has a solid pipeline of upcoming products. Unable to verify that they actually have any current deals in the works with Roche, I nonetheless liked what I saw in their charts.

Several weeks back, Mylan had an unsubstantiated rumor at their manufacturing plant in West Virginia of lax quality control. The company brought in the FDA, which cleared them of any issues. As you can see on the weekly chart below, this rumor caused Mylan to perfectly kiss their 50 MA, and bounce right back.

Like many other strong names, Mylan bottomed in late 2008 and not March 2009, and enjoyed a full double and change from those lows. Two horizontal trend lines mark the area where Mylan is most likely to see some current resistance and consolidation. A bit of basing in here would be welcomed, and once Mylan takes out the upper trend line, a trader could have a great place for a stop (lower trend line) as well as room to run up to $20.

Teva Pharmaceuticals (TEVA)

Teva is one of those rare stocks that would have richly rewarded a buy-and-hold investor over the last decade. Pull up a monthly chart for yourself and look at the slow assault on the heavens that it has pulled off. Granted, hindsight is the panacea of the wounded, and the main reason investors are still licking their wounds from the 2008 slaughter. But a chart like Teva always gets a second look, if only for the mere fact that it's a godfather that has actually delivered.

In the last month, Teva has gone to all-time highs -- a point when not a single short seller is in the money. This golden moment when a stock sets an all-time high allows traders to not fight overhead resistance, and is a perfect place to go long. That area is around $50 for Teva, so I'd like to see it come in a bit before I'd go long. Digesting the great run it's had off of its October 2008 lows would allow Teva to exhale and weed out the impatient traders, and possibly suck in some shorts who see this run as unsustainable. An astute trader knows to never fight the trend, and this chart clearly points up.

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No positions in stocks mentioned.

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