Shares in biotech Cytokinetics (CYTK) were on the rise Monday, opening up slightly and then picking up momentum as the day wore on. The move lacks a specific news item that appears to be driving the action, however the action could be due to a combination of momentum/technical trading along with positive market dynamics driving up biotechs across the board.
Cytokinetics may also be continuing to ride a wave from Thursday, when it was revealed that Steve Cohen’s Point72 Management (ne SAC Capital) had taken a new position in the company. A 13G filing by the hedge fund revealed that it now owned a 5.5 percent stake in Cytokinetics, representing another firm vote of confidence in the company from institutional buyers.
News of Cohen’s fund buying in helped drive shares higher on Thursday, but only modestly so, which gains of just under 5 percent on the day. Monday, however, may have revealed that there was at least a little pent up demand in the stock coming out of the three day weekend.
Shares opened up just under 2 percent at $9.70 a share. The stock, though, was trading with heavy volume and continued to gain as the day wore on, reaching a high of $10.84 a share. Heading into the final hour of trading, shares were just below $10.75 apiece, a gain of just under 13 percent. The relatively modest opening followed by the strong run up over the course of the day could indicate a short squeeze, with what few shorts are left bailing on the stock as it continues to rise.
However, previous gains that had that look on April 9 ended up getting pared back significantly on April 15, a day that saw some pretty volatile action for the stock markets as a whole and biotechs in particular.
Today’s gains, though, appear to be combining several factors to create a perfect storm for Cytokinetics. Firstly, it’s been a solid day for biotechs, with the iShares NASDAQ Biotechnology Index ETF (IBB) and the SPDR S&P Biotech ETF (XBI) both gaining over 1.75 percent against gains of about 0.50 percent for the Nasdaq Composite and just over 0.25 percent for the S&P 500.
After two wild weeks of trading that ended up hitting biotechs especially hard, it appears as though Monday is seeing some stabilization and a return to these riskier growth stocks. Institutions may be viewing these stocks as coming at a much better value. Cytokinetics, already a darling of institutional buyers (institutional ownership of nearly 60 percent prior to Cohen’s stake) and analysts alike, would outwardly appear to be an ideal buy for anyone looking to jump back into the biotech game.
And, if broader market forces and carryover buying on the Cohen news started the action, it appears as though technical factors and a bullish chart pattern took over to help drive the stock even higher once the buying spree was under way.
Cytokinetics had previously been in a symmetrical triangle pattern, with a downward sloping resistance line converging with an upward sloping support line. This pattern typically signifies a period of consolidation leading up to a breakout, either up or down. In this case, traders watching Cytokinetics would likely have noted this pattern and, once the stock broke resistance at just over $10 just before 10:30 am ET, jumped onto the stock as it started to break out. If the momentum traders looking for a big intraday move joining the investors looking for a path back into biotech stocks, it’s easy to see where Cytokinetic started to take off.
And, if the chart pattern alone wasn’t enough, a few other bullish technical signs also could be playing into the upswing. The stock crossed its 50-day SMA from below at the open, and the day also saw the MACD line crossing the signal line from below in early going. Both of these are considered buy signals, with the latter being the more significant of the two.
Small-cap biotech Cytokinetics is currently working with Amgen (AMGN) to develop its lead therapy omecamtiv mecarbil, a small-molecule therapeutic that affects muscle tissue to help reduce shortness of breath in heart failure patients. The drug is currently in a Phase II trial that Amgen expanded by some 450 patients at the end of March.
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