In his first "Executive Decision" segment of Mad Money Monday night, Jim Cramer spoke with Henry Ji, chairman, president and CEO of Sorrento Therapeutics (SRNE) , the biotech which went up 20% after the company received FDA approval to proceed with Phase 2 trials of its antibody therapy for Covid-19.
Ji explained that Sorrento's treatment, Abivertinib, will be tested on Covid-19 patients with severe enough symptoms to be admitted to the ICU but do not yet require a ventilator. Phase I studies have shown promising results in curbing the effects of the virus.
Sorrento also continues to work on a Covid-19 vaccine which uses the company's antibody technology.
When asked how his company has been able to develop so many different drugs, Ji said good drugs usually come from smaller companies and Sorrento has both the infrastructure and the team to use their platform in different areas at the same time.
Let's check out the charts of SRNE.
In this daily bar chart of SRNE, below, we can see that we are dealing with a low-priced stock that can move sharply - both up and down. Prices bottomed out in the $2 area before traders became active in late November. Prices made a huge percentage move into January before retreating back down into March.
In May we can see a huge upside price gap and heavy volume. Prices surged to $10 before gravity takes hold again with a pullback to $4. SRNE is now trading above the rising 50-day moving average line and the rising 200-day moving average line.
The daily On-Balance-Volume (OBV) line has moved up strongly since May and tells us that buyers are more aggressive and also that buyers seem to be holders of the stock and not jumping out quickly.
The Moving Average Convergence Divergence (MACD) oscillator is above the zero line but has narrowed to the point where it could turn up or down from here.
In this weekly bar chart of SRNE, below, we went back five years to show what I believe is a significant base formation. A weekly close above $10 will be a major upside breakout, in my opinion. Prices are above the rising 40-week moving average line.
Volume has increased recently and the MACD oscillator is bullish. The OBV line is a bit "unstable" but so is the price right now with a big short interest.
In this Point and Figure chart of SRNE, below, we can see a price target in the $26 area. This dovetails with the big base pattern on the weekly bar chart above.
Bottom line strategy: SRNE looks a bit "wild" considering its price swings in the past few months. I am impressed with the big base on the weekly bar chart and the upside price target on the Point and Figure chart.
The question for me is when to buy and what to risk. With a potential price target of $26, I want to wait for a weekly close above $10 before going long. Yes that means giving up gains but to me it means the odds are more in my favor of making a good trade. Risk at least $2 from entry.