Catalyst Biosciences Inc (NASDAQ: CBIO)
When I first covered Catalyst Biosciences on November 9th, I had a strong feeling that the bully beatdown that they fell victim to would be short lived. While bullies can take advantage of the weak, they always fail against the opponent that does one simple thing – keep getting up. And that is exactly what CBIO has done during the past few trading days.
CBIO Withstands The Beatdown
A great stockwise philosopher once said, “A stock is not measured by how many times it gets knocked down, it is measured by how many times it climbs back up.” That was said by Peter Lynch. Oh, not the famous Peter Lynch from the early days of mutual funds, I am referring to my old neighbor, Petey “Quicktrader” Lynch. He was a great trader, and CBIO would be exactly the type of stock he would pick as a winner.
Few traders doubted his wisdom, and I, abiding by the lessons, have done the necessary and required diligence to support my thesis that CBIO is on the verge of breaking out of its long slumber and trading toward the upper right corner of the stock chart.
From a technical perspective, CBIO has hit my targeted trigger points that signal a reversal of fortune in both the near and longer term. The pivot point at 68¢ on November 17th began the reversal process, and, since that day, CBIO has traded higher by over 22%, closing at 82.99¢ on Monday, November 21st.
From a technical perspective, I watched the pivot point being challenged relentlessly by traders, and when the 68¢ level bounced and held for the third time, investors embraced it as the bottom and started to accumulate shares quickly.
Recent trading volume has been demonstrably higher than the monthly daily average, and while analyzing the trading on Monday to gauge the strength in the conviction of the move CBIO was staged with an imbalance of buyers and sellers with large blocks consistently placed on the bid, met with an unequal and far less quantity for sale.
Trading on Monday supported the reversal from a technical sense, and my leading indicators show that there is more room to the upside with my near-term target set at $1.06 a share representing a potential gain of 26% if my endpoint is reached.
Using my CIS (combined indicator strategy), both the RSI and the MACD are positioned in such a manner that the likelihood for the shares to appreciate in value is high.
The weekly RSI stands at 39.97 and the daily RSI closed the day at 52.66. Each of these numbers indicate room to grow, however, the weekly RSI at only 39.99 gives me bullish cause. The weekly reading at 52.66 is also a reinforcing factor to my thesis, and despite the recent 22% climb on strong volume, the RSI is still well below my 70 threshold – the point at which I begin to reassess the holding and consider taking a profit. In full disclosure, I rarely short-term trade, and such a strategy has not always been the wise choice.
I have written on more than one occasion that no investor ever went broke by taking a profit. And, it is solid advice. When investors are trading in stocks that are volatile similar to what we have seen in CBIO, taking money off the table at appropriate times is a wise and prudent move. By nature, I am a long-term trader and don’t appreciate paying my accountant t additional fees to tell me that I owe more in taxes. It’s a double negative that does not equal a positive. Thus, I try to avoid short-term gains, but try even harder to avoid any type of loss.
However, with that said, stocks that have rapid moves in either direction will more often than not correct to a mean. The problem is is that when that mean is reached, investors can almost toss a coin from a technical perspective as to which way the next break will go. Therefore, don’t ever be afraid to take the money and run.
Now, just because the RSI is at a level that indicates a bullish trend, I can’t rely on that signal alone. I incorporate the use of the MACD, an indicator that provides investors with information on both momentum and trend – the two best friends of an astute trader. For those not so astute, the MACD is a great tool that can help simplify a trading decision when using trend and momentum as a leading indicator. Specific to CBIO, the MACD (similar to the RSI) is providing me bullish indications as well.
Just as we are witnessing with the RSI, the MACD is also far from overheating in regard to the recent trading in CBIO. The MACD base line (the level that signals divergence from a trend) has been kept relatively sober, maintaining a positive trend, but not doing so with exorbitant pitches in the wave pattern.
On Monday, the MACD closed slightly bullish above the baseline, a level that I like to see at the day’s end, as it generally leads to a bullish follow through in the following trading session. CBIO not only has the RSI and MACD in position, but like I mentioned earlier, the buying momentum was increasing into the close and was strong through the final trade. In all honesty, the closing price is a Pinocchio’s tale.
CBIO was trading at 84¢ a share just prior to the final trade, but market makers gapped the stock down to 82.99¢ a share on a very small volume trade, which scalped a little over 1.5% off of the day’s total gains. Perhaps a bit of window dressing to disguise the strength, such mm deception goes both ways.
Back to the MACD, though. Even with the heavy volume and with both trend and momentum strong into the close, the MACD remained just above 0, which leads me to believe that CBIO will open higher. My speculation is bolstered by the RSI levels, which in and of itself provides me confidence, but coupled with the MACD, I would be surprised to see a lower opening price.
Importantly, political, social, and worldwide economic factors can and will weigh heavily on any market, and even though investors can utilize a multitude of technical tools to facilitate a trading strategy, investors must always keep an eye on the macro aspect of a trade. Always check the morning news prior to market open.
Remember Why We Like CBIO
Technicals’s are only an indicator, and unless you are a strict technical trader that only needs a chart and a symbol to make a decision, CBIO still works for you.
But, for other investors, like me, there needs to be an underlying thesis to support the technical move.
We do know that CBIO may very well be benefiting from its focus to advance the development of next generation Factor VIIa and Factor IX programs using subcutaneous dosing to treat hemophilia.
CBIO has reiterated that they are on track to initiate a phase I/II clinical trial for Factor IX variants in 2017 utilizing its unique and differentiating approach to treatment – subcutaneous therapy rather than the current method of care that uses an intravenous method of dosing. CBIO has demonstrated feasibility of the subcutaneous treatment in animal models, and improving upon Factor IX proteases is intended to lead to additional compounds to treat hemophiliaB, a life-long disease caused by a genetic deficiency in coagulation Factor IX.
Pivoting off of the bullish technical position, investors should also be aware that 2017 will be an emergent year for CBIO. The company plans to initiate a phase I/II proof of concept study for patients with hemophiliaB and will enter a second phase I/II proof of concept study for its combination treatment utilizing CB 2679d and ISU304, subcutaneous treatments that offer a differentiated and well-tolerated therapy option.
CBIO will also advance its next generation coagulation compound, Marzeptacog alfa, in a study to determine its prophylactic ability in 2017, intending to build upon their earlier results that demonstrated that Marzeptacog alfa provided higher clot-generating activity at the site of bleeding coupled with improved efficacy that could make the compound a candidate for use as both a subcutaneous and prophylactic treatment for patients.
CBIO Cash Value
Putting it all together, CBIO has the technical indicators in its favor and has a strong clinical agenda for 2017. However, there is still at least one other major indicator that is hard to ignore. CBIO is trading for less than its cash value!
CBIO has approximately $19 million dollars in cash on hand, which equates to a little over 80¢ in share value that investors have not yet factored into the current share price. As I showed in my prior article, CBIO should be trading closer to $1.63 a share, based on cash alone. When the IP portfolio and clinical accomplishments are factored in, that price should move substantially higher.
Yet, as investors, we know that the market is an inefficient beast. Pricing stocks is such an inexact science that some pundits have let monkeys throw darts at a board and use those picks against the pros’. Sometimes the monkeys won.
I’m not saying that a monkey can consistently beat a professional investor, but if an investor fails to use some of the most basic tools at their disposal to assist in the process, the chimp’s odds increase dramatically.
For CBIO, now trading at 82.99¢ a share, an opportunity exists for investors to grab a position and follow the trend higher in the near term. My analysis indicates a move past the $1.00 level with initial resistance at $1.06 and with secondary resistance at $1.22 a share. The first point represents a 26% gain and the second level represents a 45% gain.
CBIO has strong management, cash on hand, and a populated pipeline to generate additional momentum into 2017. Once the two milestones are hit (guided to happen within the next six months), investors will be fortified with additional data to drive the investment thesis in one of two directions. But, at that point, once the stock grows into its skin, investors will have gained enough insight as to the overall promise at CBIO.
In the near term, indicators and momentum make me confident that CBIO will perform well. Technically speaking, CBIO is well positioned to make it to Dollarsville in the near term, facing down the bully that beat them senseless since the start of the year.
All stocks trade in cycles and, if an investor can catch a ride, it can be mighty fine. Keep an eye on the technicals, though, because when they turn, gains can be sucked back faster than a college student can do a shot in a Jagermeister bar.
In the meantime, CBIO looks strong and I expect some follow through in the near term. Reevaluate your holding at $1.06 and determine your anxiety threshold before proceeding to the next level.
Disclosure: I am long CBIO and may purchase additional shares within the next 72 hours.
I wrote this article myself and it includes my own research and expresses my own opinions. I am not receiving compensation for it (other than from CNA Finance). I have no business relationship with any company whose stock is mentioned in this article.
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