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TheStreet Open House

Speculative Money Propels Biotechs La Jolla Pharma, Aeterna Zentaris

Stock quotes in this article: LJPC, AEZS, NBS

NEW YORK (TheStreet) -- When speculative money is flowing into the stock market, as it is right now, I like to focus on biotech stocks. The biotech sector is on fire, so it's a great place for traders to find stocks ready to break out from consolidations.

A recent example of interest in this very hot area right now is the huge move we have seen in shares of La Jolla Pharmaceutical  (LJPC) over the last month. During that time, La Jolla has seen it shares gain 135%. Today as of 3:55 p.m., La Jolla is up 64% to $17.91 on the heels of very good trial data for its kidney disease drug.

Such a large move in the biotech sector usually drives traders into other nicely set up biotech charts. That's happening with shares of Aeterna Zentaris  (AEZS). At 3:55 p.m. today, shares were at $1.49, up 16.5% for the day. 

Aeterna is one of the more hated biotech stocks around, with it shares seeing some large volatility over the last year. Looking at the chart below, we can see Aeterna is setting up for a pretty significant chart breakout now that it has passed $1.34. A break of this resistance level should see the stock make an attempt on the 200 day moving average at $1.48 -- and that's exactly where it's hitting today.

Above this level, the stock would look to challenge its November 2013 high of $1.74. That's a potential 30% upward move on the chart. Aeterna has had solid support at $1.25. Now that the stock has overcome the small band of resistance at $1.39, this should set Aeterna free for a sustained move higher.

Traders should monitor volume in Aeterna for a confirmation of this breakout. When Aeterna sees volume above 4 million shares, it has been a signal in the past that the move higher is real. A 17 million volume day in early January saw Aeterna move from $1.12 to $1.39 within a week, for a very nice 25% return.

This is important: small cap biotechs are volatile, and traders considering them should adhere strictly to stops.

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