This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

A Beaten-Down Biotech Stock Gearing Up for a Big Squeeze Higher

DELAFIELD, Wis. (Stockpickr) -- Fireworks are going off in the biotech sector today, after Vertex Pharmaceuticals (VRTX - Get Report) reported very positive results from an important late-stage drug trial regarding its cystic fibrosis treatment Kalydeco.

>> 5 Stocks Set to Soar on Bullish Earnings

The company announced that the combination of two of its drugs, lumacaftor and Kalydeco, showed positive results for treating symptoms of cystic fibrosis, such as improvement in lung function. Shares of VRTX are ripping sharply higher off this news, with the stock up over 35% as I type this.

This action is setting off some of the small-cap biotech stocks as traders scan the sector for the next big movers. Just take a look at the action in some small-cap bio names such as IsoRay (ISR - Get Report), which is soaring higher by 17%; Ibio (IBIO), which is ripping higher by 9%; and KaloBios Pharmaceuticals (KBIO), which is trending sharply higher by 8%. As a trader, this sector behavior has me scanning the biotech complex for the best-looking charts so I can attempt to get in early and catch the buying wave if it spills over to more of the small-cap names.

The technical setup for IsoRay happens to be one that I flagged before this move in June 5's "5 Stocks Under $10 Set to Soar" at around $2.50 per share. That setup has produced a very solid gain, since the stock tagged an intraday high of $3.26 a share today.

>>Buy These 5 Rocket Stocks to Beat the Market

One biopharmaceutical player with a hot-looking chart that's jumping off screens today is Synta Pharmaceuticals (SNTA), which focuses on the discovery, development and commercialization of small-molecule drugs for treating severe medical conditions, including cancer and chronic inflammatory diseases. Shares of Synta Pharmaceuticals have been under pressure by the sellers so far in 2014, with shares off notably by 16%.

One of the big reasons I am warming up to shares of Synta Pharmaceuticals here is the massive short interest on the stock. The current short interest as a percentage of the float for Synta Pharmaceutical is extremely high at 24%. That means that out of the 55.7 million shares in the tradable float, more than 13 million shares are sold short by the bears. This is a large short interest in a stock with a relatively low tradable float. If the biotech sector continues to catch fire, then a stock like SNTA is going to be exactly what fast traders reach for. Starting a short squeeze in STNA won't be hard to do with that relatively low float and quickly improving technical picture for the stock.

>>5 Stocks Under $10 Poised to Pop in June

Another reason that I like shares of Synta Pharmaceuticals here from a trading perspective is the fact that billionaire hedge fund manager Bruce Kovner has buying snapping up a ton of shares of SNTA recently. Kovner is chairman of Caxton Alternative Management, which he set up in January 2012 to manage his investment, trading and business activities. His most recent estimated net worth is said to be in the range of $4.8 billion. Kovner is famous for getting his start in trading by borrowing $3,000 against his credit card and turning that into $23,000 trading soybean futures contracts.

Kovner has bought some huge blocks of Synta Pharmaceuticals recently, like in early April, when his fund added $5 million worth of SNTA at $4.01 a share, and in November 2013, when his firm snapped up $18.75 million at $3.75 a share. Kovner also bought around $20 million in December 2012 at a much higher price of $8.60 a share, so his timing hasn't always been right, but he's clearly building a large position for more than just a short-term trade. In fact, it wouldn't surprise me one bit to see Kovner step up again soon to buy shares of SNTA, since he's been steadily buying it since June of 2012.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
ISR $1.15 0.00%
SNTA $0.40 0.00%
VRTX $84.34 0.00%
AAPL $93.74 0.00%
FB $117.58 0.00%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs