In his "Homework" segment of Mad Money Friday night, Jim Cramer followed up on a few biotech stocks that had stumped him during earlier shows. He said that biotech is a tricky business and is always speculative. Investors should never gamble with retirement savings, Cramer urged, and only invest with discretionary funds.
CymaBay Therapeutics Inc. (CBAY) illustrates the potential pitfalls of early-stage biotech, according to Cramer. The company had disappointing Phase II trials and the stock plummeted in June.
Let's see what the charts and indicators might now indicate about the stock price in the weeks ahead.
In the daily bar chart of CBAY, below, we can see that prices gapped lower in June with prices getting cut from $10 to $5 in a hurry. CBAY rebounded to above $7 and has been stabilizing in the $6-$5 area the past six weeks or so. CBAY is testing the declining 50-day simple moving average line. The 200-day moving average line has a negative slope and intersects around $9.30 or so.
The On-Balance-Volume (OBV) line has been in a downtrend the past 12 months. The Moving Average Convergence Divergence (MACD) oscillator has been improving from a low in late June and is now close to crossing the zero line for an outright go long signal.
In the weekly bar chart of CBAY, below, we can see a mixed picture. Prices are below the declining 40-week moving average line, maybe too far below. Price can get extended on the downside in addition to the upside.
The weekly OBV line peaked in June of 2018 but it has been holding a bit better since early August. The MACD oscillator has narrowed and is close to a cover shorts buy signal.
In this Point and Figure chart of CBAY, below, we have a mixed picture. The software is projecting a possible downside price target of $0 -- zero. Ouch. But there is a lot of price activity in the $6.00 area where prices have been holding. A decline to $4.75 would be bearish but a rally to $7.50 would improve the picture.
Bottom-line strategy: CBAY appears to be in the early stage of making a new base pattern. If you decided to get involved from the long side use the $4.75 level as a stop loss and strength above $7.50 as the place to get more aggressive.