As Wall Street froths at the prospect of Washington officials cracking down on drug pricing, Jim Cramer took to the charts to sift some promising biotech winners from the noise.
"Sometimes it makes sense to fear what's going on in Washington, but sometimes political worries are simply a smokescreen that the shorts use to scare you out of high quality stocks," the "Mad Money" host said.
Using the charts of ExplosiveOptions.net founder and TheStreet technician Bob Lang, Cramer unearthed four strong stocks that seem poised to rise above political threats to their business.
Cramer began with Lang's favorite chart, the daily chart of Sage Therapeutics, a company that develops medicines for central nervous system and mental health disorders.
Several weeks ago, shares of Sage broke out of their consolidation stage and reached new highs. In late March the stock price gapped up, jumping from $64 to $71.
What's more is that the indicator technicians use to find out when a stock will change direction, called the MACD indicator, showed a crossover into bullish territory — as Cramer noted, when the black line crosses above the red line.
"Sage has given us impressive relative strength compared to the rest of the market," Cramer said. "Oh, and the stock pulled back today, coming down $1.62. Lang says it potentially gives you a better entry point. I've got to agree."
However, Cramer added that being an "unprofitable, development-stage biotech," Sage is more of a speculative play, so he introduced the chart of one of his favorite biotech plays, Celgene, for comparison.
Lang noticed that shares of Celgene, which develops treatments for cancer and inflammatory disorders, have been trading sideways in recent weeks, building a higher base level from which the stock will eventually move up.
In addition, a tool called the Williams percent R oscillator that measures the overbought or oversold condition of a stock showed Celgene shares inching toward overbought territory, which suggests that it could be regaining momentum.
"Once Celgene can rally past its March high of $127 and change, up a little less than 3 bucks from here, Lang believes the stock will start breaking out, easily sailing through $130," Cramer said.
If the $239 stock of Allergan breaks out to the upside, a result Lang finds more likely than the opposite, and climbs to over $240, Lang believes it could sail to $250 and beyond.
If Kite Pharma, which currently trades around $78, can shoot above $85, Lang could see the immunotherapy play fly to $100.
Cramer's take? "I think the drug pricing issue is a total political red herring, and the charts, as interpreted by Bob Lang, suggest that smoking-hot biotechs like Sage Therapeutics, Celgene, Allergan and Kite Pharma could have a lot more room to run," he said.
Watch the full segment here: