In his "Homework" segment of Mad Money Friday night, Jim Cramer followed up on a few stocks that stumped him during earlier shows. He said that Allakos (ALLK) is a promising biotech, but the company only has one drug under development, making it risky. While the stock has doubled on excellent Phase II data and orphan drug status, a recent report raised some concerns about results.
Cramer was more bullish on another biotech, however -- Global Blood Therapeutics (GBT) , which just received FDA approval for its treatment for sickle cell disease. This is an under served market, he said, and the data here are very promising.
In this daily bar chart of ALLK, below, we can see an "interesting" chart pattern. Prices made a long base pattern from January into late July/early August. Prices moved tightly around the $40 level in light volume or turnover. Prices sank to a new low in July but then exploded with a big upside price gap and very heavy trading volume in early August.
Prices gaped above both the 50-day moving average line and the 200-day moving average line and never looked back. The shorter 50-day moving average line crossed above the slower-to-react 200-day line in August for a bullish golden cross and prices have continued higher above both rising average lines.
The daily On-Balance-Volume (OBV) responded on the upside and confirms the price gains.
The trend-following Moving Average Convergence Divergence (MACD) oscillator turned up above the zero line in August and November and just crossed to "a take profits sell signal".
In this weekly bar chart of ALLK, below, we do not have much price history to manipulate. Prices are above the rising 40-week moving average line, but notice the large outside week on the bar chart.
The weekly OBV line has been rising from February of this year and the weekly MACD oscillator has been bullish since late July.
In this daily bar chart of GBT, below, we can see a sideways trading range market that resolved to the upside from November. Prices tested the downside in August, October and November and then started to move to the upside breaking above the 50-day moving average line and the 200-day moving average line as well. The 50-day line crossed above the 200-day line in December for a bullish golden cross of these two lagging indicators.
The daily On-Balance-Volume (OBV) turned up strongly in November to confirm the price action and an upside price breakout.
The MACD oscillator moved above the zero line in November for an outright go long signal and only now crossed to the downside for a take profits sell signal.
In this weekly bar chart of GBT, below, we can see more price history and the importance of the recent upside breakout. GBT broke out from a two-year consolidation pattern about $35 in height so the price target from the breakout point should measure to around $100. Prices are above the rising 40-week moving average line.
The weekly OBV line is bullish and so is the MACD oscillator.
Bottom line strategy: Traders could approach the long side of both ALLK and GBT, but with more price history we are more confident in the GBT signals.