Chart of the week: a cheap pharmaceutical stock with potential
Our chartist goes off-piste with this share, which could be set for a sharp rally.
22nd March 2021 14:03
by John Burford from interactive investor
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Our chartist goes off-piste with this share, which could be set for a sharp rally.
I am going slightly off-piste this week with a small US pharmaceutical share, founded in 2009, that I believe shows great promise. The company, Clovis Oncology (NASDAQ:CLVS), produces cancer treatments. I have been following it for some time for my clients.
Below is the weekly chart from 2013, which shows how volatile shares of small ‘pharmas’ can be. Various drug trials are run – and are either failures (common) or blockbusters (rare). As with all early ventures, speculators are drawn in, and when initial results appear promising they bid up the shares to sometimes great heights.
But they can be excellent vehicles for my ‘buy low, sell high’ strategy – especially when you can catch them after substantial declines, as here. These are true roller-coaster rides!
Past performance is not a guide to future performance.
The all-time high (ATH) was put in at $116 (£83.64) in 2016 as results from one trial was heavily anticipated. But note the disappointment when news broke the trial had failed, in the shape of a huge gap down from $100 to $30 in a flash.
And, after a basing period, they roared northwards again as new drugs were trialled. The shares reached the $100 mark again, but once more great results failed to materialise and the shares drifted down to the all-time low (ATL) in October 2019 at the lowly $3 point.
It was back to the drawing board for the company scientists, but they must have learned a lot from the previous failures, so is this next venture the ‘third time lucky’ one?
Past performance is not a guide to future performance.
I have a super downtrend line which was broken in January pushing the shares up to my resistance zone around the $10 area. It then fell back to attempt a traditional ‘kiss’ and ‘scalded cat bounce’ on the line where I became interested in trading it again. Note the near miss on the kiss, which may be significant in supporting a sharp rally phase now.
On Friday, news came of positive developments in one of its treatments, and the shares shot up to more than $8 in what appears to be the start of another major leg-up.
Any push above my $10 resistance bar would likely send them up towards my next target of around $25, with higher potential. I remain bullish, with my fail-safe level at the $5 mark.
John Burford is the author of the definitive text on his trading method, Tramline Trading. He is also a freelance contributor and not a direct employee of interactive investor.
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