I have no doubt that even broaching the subject will enflame some fans and followers of Prana Biotechnology Limited (NASDAQ:PRAN), so let me deflect some of that by being clear right from the start - what you're about to read is on no way a reflection of my opinion regarding the company. PRAN is a fine organization, and its work in the field of Alzheimer's (Prana Biotechnology is developing an Alzheimer's therapy, but the same underlying biotechnology also holds promise as a Parkinson's treatment) is compelling. But, this has nothing to do with that perceived, underlying 'value'... current or future. This has to do with the way the stock has taken on a life of its own, which can be fun for a while, but eventually can be painful as reality sets in. I fear what happened to Inovio Pharmaceuticals Inc. (NYSEMKT:INO) is also going to happen to PRAN, which is fine if you're nimble, but is miserable if you can't start at you're trading screen all day long.
Just for the record, as my pessimism on INO was ultimately proven to be right, though I was WAAAYYY to early. I figured the small pop we'd seen from Inovio Pharmaceuticals had run its course when it rallied from $0.66 to $0.89 by the first of July. As it turns out, INO was on course to rally for a whole 'nother month, reaching a high of $3.03 before it was all said and done. Granted, the stock still fell back to a low of $1.22 a couple of weeks later, almost getting back to where I assumed it was going to top out anyway. But still, I missed the boat on that one. I don't think we'll see another month's worth of bullishness from Prana Biotechnology Limited like we did with Inovio Pharmaceuticals, however, for a couple of reasons.
One of those reasons is the fact that PRAN has already rallied more than 160% in less than two months, which is roughly in line with how far and how long INO did before hitting a major top. Also, while Inovio dropped some strong clues of a top being made (like a volume spike on a rally that carried it well into overbought territory), the volume spike we saw from PRAN yesterday was even stronger than the last-hurrah volume surge we saw when INO was hitting its peak. Throw in the fact that Prana Biotechnology shares left behind a gap at Friday's open, and then peeled back considerably from the high of $6.24 to close at $5.83, and what you have are several warning signs that the rally is now running on fumes. We may even see a little more upside today, according to the pre-market action. That doesn't really change the fact that the rally is getting very, very tired though. If we end up making a small gain but on lower volume, and/or of we end up making a doji bar where the open and the close are practically the same, that'll be another sign that the runup has spent all of its fuel. Again - and I can't stress this enough - this is on no way a judgment call on Prana Biotechnology Limited and its efforts to develop critical drugs. This is a judgment call on the way a stock has separated itself from the company and taken on a life of its own, and is being driven by hype and euphoria. When hype and euphoria finally fader though (and they always do eventually), a rally can stop and turn on a dime. If you really like the company, don't sweat or fret it - just use that dip as a buying opportunity. If you'd like more trading ideas and insights like this one, become a subsctiber to the free SmallCap Network newsletter. You'll get stock picks, market calls, and more.
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