First, I look to see of there is a near-term catalyst that might help the stock. In Pererine's case, there are two. First, the company says it is receiving interest from large pharmaceutical partners for bavituximab partnership. Peregrine's CEO said Monday he wants to sign a deal as quickly as possibly, preferably before the company meets with FDA to discuss the design of the phase III trial.
Second, Peregrine plans to announce updated results from a phase II study of bavituximab in first-line lung cancer patients. These data should be released before the end of the year, and if positive would likely send the stock much higher.
With two, near-term catalysts ahead it makes sense to buy Peregrine here, keeping the chart as a guide for further entries and exits.
When the bavituximab data were announced on Friday, Peregine shares shot up from $3 to $5 before backing off. A close over $5 per share would mean the stock has a clear path higher, so I might want to buy a little stock here and add to it on a strong move over $5. Or, for those who want to play it even safer, just wait for the $5 level to break before entering.
I think it's quite possible Peregrine continues to frustrate the shorts and keeps going higher into one or both of the near-term catalysts mentioned above. A strong move in Peregrine's stock price above $5 would be a great signal.
As far as a stop level is concerned, I would trim my position under $4, which was the low on Friday afternoon after the data came out. I'd sell everything if Peregrine shares moved below $3. If the stock moves below $3 we can be assured the stock is going nowhere anytime soon.
With a stock like Peregrine where my conviction level is low, I keep my position sizes very small as well. There is plenty of opportunity to load up on stocks when one has more confidence but that doesn't mean traders need to avoid the stock altogether.
Rosenblum is long Peregrine shares.
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