Cempra (CEMP) specializes in treating critical bacterial infectious diseases. It has a number of Phase 3 clinical candidates specifically targeted at drug-resistant bacterial infections in the hospital and the community. Their work could not come at a better time. As widespread use of general antibiotics continues, we are seeing an increase of “super-germs” or infections not responding to existing medications.
One of Cempra’s products, Solithromycin, is in Phase 3 clinical development for community-acquired bacterial pneumonia, which kills in excess of 25,000 people per year (Wikipedia). Cempra does a lot of very complicated developmental work which I will not get into here, but what interests me is the chart.
Looking at the chart, we can see that Cempra created its first base between October and December 2014 before staging a massive run up that essentially doubled its share price. Since January of this year, the stock has been working on its second base, and it currently appears to be breaking out of consolidation. If you look at the bollinger bands, you can see the bottom band is relatively flat while the top band has started to flare open, creating space for price to move upwards.
Moving down to the MACD, we can see that the black line has crossed the red line, creating a buy signal, and the histogram is stair-stepping up – both bullish signs. Finally, looking at the full stochastic, we see that this chart is not yet overbought, but when it gets there it can stay there for quite some time.
Biotech stocks are not for the faint of heart, as they are ruled by trial results and FDA approvals and are notorious for doing secondary offerings when you least expect them – but when you choose a good stock with a viable product and trade it technically, it can earn handsome profits for your portfolio. Because the bid/ask spreads are so wide on Cempra, I would trade it in common versus options.
Cempra is scheduled to report earnings on February 25 after market close. As always, use proper sizing for your portfolio and engage in the use of stops to help contain losses.
Full Disclosure: I own CEMP common.