Tobacco Company Claims Breakthrough in Coronavirus Research. Says its Ready to Produce Vaccine Within Months

1. Long Term Outlook:

As can be seen on the weekly chart below, the price action has been trading in clearly defined ranges and channels in the past, which can be used for sketching out some critical price levels.

Evidently, the previous Markdown was developing in a distinctly outlined descending channel. The price action was contained within the boundaries of set channel, which can be used to assert that BATS stock is typically exhibiting definite behaviour when trending. This assertion can be used for future reference when distinguishing between the characteristics of range trading and trending price action. This is important because as it was mentioned above, a new major price trend could be in the early stages of its development. In case that the price starts trending once again and it behaves as it did in the past, traders can expect the new trend to form clearly outlined dips and peaks, which can be used for swing trading (opening new positions or adding to pre-existing ones at the tops and bottoms of such swings).

If this new vaccine, which reportedly is undergoing pre-clinical trials at the moment, does indeed prove successful in the long run, this would undoubtedly add to the value of the company. Even though BAT already said that it would offer the vaccine on a not-for-profit basis, the company is likely to experience other more indirect benefits from being the first public company to resolve this major global issue. Consequently, its stock price would continue rising in the long run due to this added value.

The first two significant obstacles for such a bullish trend would be the Accumulation range's upper boundary at 3260.0, and subsequently the 38.2 per cent Fibonacci retracement level at 3604.5. The latter was proven as an essential price level in the past when it served as a dip in the 2-3 impulse leg of the broader 1-5 Elliott Wave Pattern. Its status as a major resistance level was confirmed later when a throwback (after the dip at 3) was held just below it. Hence, it can be reasoned that if the price manages to break out above the 38.2 per cent Fibonacci retracement at 3604.5, the next target would be the peak at point 4.

It should be mentioned that the price action has already tried to form a breakout above the Accumulation range's upper boundary once, but it turned out to be a failed attempt (represented by the green rectangle). Hence, the price action is not entirely exempt from forming false breakouts and breakdowns. It had already developed one false breakdown just two weeks ago when the price bounced back from the major support level at 2360.0. This level was established as prominent support towards the end of the previous Markdown, as the final impulse leg (4-5) reached a dip there. This level can be anticipated to be tested once again if the vaccine proves unsuccessful, or BAT fails to achieve its agenda in any other way.

2. Weighing the Vaccine’s Ultimate Success:

It would appear that the performance of BATS' stock price in the next several months is going to be closely related to the performance of the vaccine. The problem for investors and traders under these conditions is that they would have to use a non-financial metric to measure the value of the stock. In other words, the conundrum here is measuring the efficiency of the vaccine-developing process. On what does it all depend?

Thomson Reuters reports that:

“The vaccine, currently undergoing pre-clinical testing, uses a cloned portion of COVID-19’s genetic sequence to create an antigen that is then inserted into tobacco plants for reproduction. […] Once harvested, the antigens - substances that induce an immune response in the body - are extracted and purified and inserted into the body to fight the virus, the company said, adding that the formulation it is developing is stable at room temperature, unlike conventional vaccines which often require refrigeration.”

One thing to watch for in the development process is the transition from pre-clinical trials to actual clinical trials, which would require government approval from the FDA.

If the claims of BAT are correct and the company is indeed just months away from starting to mass-produce this new vaccine, getting an approval for such a transition to clinical trials should not take longer than a fiscal quarter.

If the process starts lagging behind and the momentum is lost, this would mean that there are unexpected complications along the way. Hence, every such delay would mean that the vaccine’s development would take longer to get the final product to the market. Consequently, BATS shares would start to suffer if the company fails to meet its initial deadline, regardless of how basic and crude it is.

3. Short Term Outlook:

As can be seen on the daily chart below, the price action is exhibiting some quite interesting characteristics. The aforementioned failed breakout is represented by the Double Top pattern, which entails bearish sentiment. Due to the fractal nature of the price action, the Elliott Wave Patterns are decidedly prevalent on this lower timeframe as well. Thereby, the downswing that followed the Double Top pattern reached a bottom at the major support level at 2360.0 (the (4)-(5) impulse). The price action can be anticipated to continue behaving in a similar way, which creates opportunities for entering long at future dips (pullbacks on the EWT pattern).

Judging by the reading of the ADX indicator, the underlying environment continues to be trending. The ADX is, however, slowing down, which means that the newly developing bullish upswing is unlikely to continue with its uninterrupted linear progression without establishing minor corrections in the short-term. This assertion is inlined with our previous arguments.

The price action has reached the psychologically important level at 3000 basis points today, which is a likely turning point for the direction of the price action. Hence, the first anticipated correction of the currently developing bullish trend is likely to form around that psychologically important resistance level.

Delving even deeper into the intricacies of the stock’s price action, it becomes apparent that such a minor correction has already occurred on the 4H chart (the 1-2 pullback).

The underlying market sentiment is ostensibly bullish at present, judging by the rising bullish momentum (as illustrated by the MACD) and the appreciating 10-day EMA, which has surpassed the Middle Line on the Bollinger Bands. To confirm the perseverance of this underlying bullish sentiment in the longer run, once the expected bearish correction does indeed form, it should not break down below the Middle Line of the BB and the 10-day EMA. If it does, then the underlying market conditions could have changed.

4. Concluding Remarks:

The announcement of the British American Tobacco company regarding its participation in the race to developing a vaccine against the novel coronavirus is going to have profound consequences for its stock value in the midterm. Regardless of whether it succeeds in this undertaking or it does not, the share price of BAT is anticipated to register the upcoming fundamental developments.

The stock price’s tendency to trade in narrowly-defined ranges and channels is only going to make this expected price action more pronounced and favourable for trading.