Tranzyme

An under-$10 stock in the biotechnology and drugs complex that's quickly approaching a big breakout trade is Tranzyme ( TZYM), a clinical-stage bio-pharmaceutical company focused on discovering, developing and commercializing small molecule therapeutics for the treatment of acute (hospital-based) and chronic GI motility disorders. This stock is off to a solid start in 2012, with shares up over 25%.

On Wednesday, an analyst at JMP Securities started coverage of this stock with an outperform rating and a price target of $8 per share. Analyst Liisa Bayko said the failure of Tranzyme's most advanced drug candidate, ulimorelin, was disappointing, but the company has an even more promising drug candidate with TZP-120, a proposed treatment for diabetic gastroparesis

If you take a look at the chart for Tranzyme, you'll notice that this stock gapped down huge a few weeks ago from over $5 a share to a recent low of $1.68 a share on monster volume. Since gapping down, the stock has started to rebound sharply towards its current price of around $3.66 a share. That move has pushed TZYM back above its 200-day moving average and within range of its 50-day moving average. The stock has also just started to break out above some near-term overhead resistance at $3.30 a share.

>>5 Stocks Under $5 Making Big Moves

Traders should now look for long-biased trades in TZYM if this stock can manage to break back above its 50-day moving average of $3.97 a share with high-volume. Look for volume on that move that registers near or well above its three-month average action of 205,741 shares. A sustained high-volume move and close above that level should set this stock up to fill that entire gap back towards $5 a share or possibly higher.

Keep in mind that TZYM has already started to fill some of that gap once it moved back above $3.30. That's why a high-volume move and close over its 50-day could really get this stock juiced to fill the rest of that major gap down. At this point, I would use $3.30 as a reference point for a mental stop if you buy off weakness. If you buy off strength, I would want to see this stock maintaining a trend over its 50-day with strong upside volume flows.

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