In his second Executive Decision segment of "Mad Money" Wednesday, host Jim Cramer spoke with Dr. Steve Paul, chairman, president and CEO of Karuna Therapeutics (KRTX) , a clinical-stage biotech working to develop treatments for patients with schizophrenia and other psychotic disorders.
Paul said many treatments for schizophrenia and Alzheimer's disease today are similar to ones developed 70 years ago. That's why Karuna is so excited about its therapies, which have shown promising results without the significant side effects of those older therapies, Paul said.
Let's check out the charts of KRTX.
In this daily bar chart of KRTX, below, we can see that prices have made an irregular uptrend the past 12 months. Prices have rallied but corrections have been lengthy affairs. Prices are currently trading below the 50-day moving average line and just a fraction above the 200-day line. The On-Balance-Volume (OBV) line declined from February to August and then made a temporary recovery to early November. This pattern does not inspire confidence. The Moving Average Convergence Divergence (MACD) turned lower last month and is now crossing below the zero line for a sell signal.
In this weekly Japanese candlestick chart of KRTX, below, we can see a weakening picture. Prices have risen from late 2019 but they are testing the rising 40-week moving average line too much. It is bullish to see a test of the 40-week line and then a rally, but prices here are hugging the line or have traded below it too much for my liking. The OBV line has drifted lower the past two years, so this is another problem for chart watchers. The MACD oscillator has been weak for the past two years, telling us that KRTX has not had a strong trend.
In this daily Point and Figure chart of KRTX, below, we can see a potential downside price target in the $99 area.
Bottom line strategy: For personal reasons I truly hope that Karuna Therapeutics does find a new and better way to treat schizophrenia, but unfortunately I cannot recommend purchase of its stock at this point in time. Avoid.