Rhythm Pharmaceuticals (RYTM) was raised to a "buy" recommendation by an influential sell-side firm Monday. Shares of this commercial-stage biopharmaceutical company have soared sharply in recent weeks so we want to see how we should proceed.
In the daily bar chart of RYTM, below, we can see that the shares were trading below $4 back in May and June and then soared to above $24 Monday. Wow. Prices have retreated from their best levels but still remain well above the rising 50-day and the rising 200-day moving averages.
The trading volume surged in June and July but is less robust in August so far. The On-Balance-Volume (OBV) has climbed sharply the past six to seven weeks to confirm the price gains. The 12-day price momentum study shows a small bearish divergence as prices made new highs but the indicator did not.
In this weekly Japanese candlestick chart of RYTM, below, we can see a "measured move" rally in recent weeks. The shares are trading above the rising 40-week moving average line.
The weekly OBV line confirms the price gains while the slow stochastic indicator tells us that the rally is extended (overbought).
In this daily Point and Figure chart of RYTM, below, we can see that prices reached and exceeded a price target of around $8.
In this weekly Point and Figure chart of RYTM, below, we can see a price target in the $36 area.
Bottom-line strategy: RYTM could trade higher and we have a $36 price target but the problem is what do we risk? With the shares overbought the risk is prices decline right after we go long. Let's stand aside until we can find a relatively low risk entry point.
