Small biotech companies don't really care about high oil prices or European sovereign debt issues. They just want to get their innovative products onto America's prescription counters before burning through huge wads of seed capital. That's good news in a wicked market that's turned spastic and unreliable due to political and economic events on the other side of the world.
It's business as usual in the speculative sector these days, with furious rallies and breathtaking selloffs triggered by research setbacks, competitor breakthroughs and poorly timed secondaries. In addition to those challenges, there's less cash for biotech purchases because potential shareholders have already taken major commitments in other groups because of the bull market.
Investors and traders have become more skeptical of these small stocks for another good reason. In truth, there have been few big success stories since
took off in 2009, and many unfortunate blowups thanks to more skeptical Food and Drug Administration committees, poorly constructed research and just plain bad chemistry.
Technical analysis works well in lowering the typical risks of ownership, at least in between important milestone dates such as FDA meetings. So let's pull up the charts of four sector leaders and look for developing opportunities in this dangerous March market. For a deeper analysis of their product lines and research, you can check out
is engaged in stem cell research, building drugs that can regenerate damaged tissue. It hit a four-year high of $10.01 in 2005, pulled back, and failed attempts to break over that resistance level in 2008 and again in January 2010. The stock then spent a year carving out a basing pattern near $6, finally breaking out on heavy volume last week.
Price is consolidating at new support and is now heading higher. An unfilled 2010 gap between $7 and $7.40 may slow progress, but this uptrend probably won't end until it reaches the multiyear resistance zone between $8.50 and $10. I'd take aggressive profits at or near that level because it's likely to attract aggressive sellers and trigger another downturn.
locates commercially attractive drug applications and then partners with the operations that create them. It hit a swing high at $10.37 in 2003, following a long downtrend. The stock returned to that level in September 2009 and pulled back in a bowl-shaped correction that yielded a new uptrend about three months ago.
The next rally into double digits will complete a multiyear cup-and-handle pattern that favors a strong breakout. Keep in mind that this is a massive pattern that could take another year to complete. For now, just watch the two-month consolidation, with resistance at $7.25 (blue line). Buying that breakout could be rewarding for short term traders, as well as long term investors.
focuses its efforts on a variety of cancer drugs. It came public near $5 in 2006 and hit $6.70 just two months later. That price level still marks the all-time high. The stock came within $0.40 of that barrier in May of last year and has now returned once again, completing the next stage of a multiyear cup-and-handle-breakout pattern.
The next buying spike will clear all resistance levels, allowing this issue to move substantially higher, with a first target in the low double-digits. Just keep in mind that the company has one major drug in development, with a key study expected in 2012. Any early news that suggests the current research trials will fail has the power to cut the stock's price in half.
works on drug applications to fight infectious diseases. It came public near $14 in 2006, hitting an all-time high at $20 three months later. The stock then entered a steep slide, finally bottoming out at $0.65 in early 2009. The subsequent recovery stalled near $4 in late 2009, with a secondary uptrend breaking above that level in December of last year.
The stock has risen 50% since the breakout, in a steady uptick that hit $6.20 last week. Price is now consolidating at that level in a tight pattern that should yield another round of new highs soon. Strong upside volume (red box) in the last week suggests that momentum will increase, perhaps yielding a rally all the way into major resistance at an unfilled 2007 gap between $9 and $18.
At the time of publication, Farley had no positions, although holdings can change at any time.
Alan Farley is a private trader and publisher of
Hard Right Edge
, a comprehensive resource for trader education, technical analysis, and short-term trading techniques. He is also the author of
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. He has written two books:
, due out in April. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks.
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