Historical Sell Signal Sounding for This Drug Stock

The shares of Insmed Incorporated (INSM) are on pace for their best week since September 2017, currently up 39%. The equity gapped higher on Monday after the biotech reported well-received sales data for its lead lung disease drug, Arikayce, and Insmed is expected to discuss the drug more at 7 p.m. ET tonight at the J.P. Morgan Healthcare Conference. However, on the charts, INSM stock is running into a historical wall, which could suggest buyers exercise caution here.

Specifically, INSM is now facing off against its 52-week moving average, after a lengthy stretch below this long-term trendline. Looking back 15 years, there have been 15 other times where the equity has come within one standard deviation of its 52-week, after which INSM was higher one month later just one-third of the time, with an average loss of 7.93%, per data from Schaeffer’s Senior Quantitative Analyst Rocky White.

Further, INSM is approaching a 50% Fibonacci retracement of its decline from its early 2018 peak to its Dec. 24 annual low of $11.31. This area — in the $22-$23 range — has provided both support and resistance for the shares in the past year. From the stock’s current perch at $20.66, another 7.93% pullback in the face of resistance would have the shares around $19.

Meanwhile, INSM is overbought after this week’s bull gap. The security’s 14-day Relative Strength Index (RSI) stands at 76, also suggesting a short-term pullback could be in the cards.

If so, or if Insmed’s drug presentation tonight fails to impress, the equity could be vulnerable to negative analyst attention. Currently, six of the eight brokerage firms following INSM consider it worthy of a “buy” or better endorsement.

However, if INSM extends this week’s journey higher and topples multi-layered resistance, several shorts could be kicking rocks. Short interest represents nearly 20% of the stock’s total available float, or about 18 days’ worth of pent-up buying demand, at INSM’s average pace of trading.