In early April I wrote about going long Ibio (NYSE:IBIO). IBIO stock went on to rally 200% from there. This was in spite it having been a penny stock even at the start of this year. The technical and fundamental potential were reason enough to trust the upside potential. In fact, that article on IBIO stock marked the absolute low of the correction.
The bad news for the bulls is that the easy work is finished. From here the buyers will have to push harder to make new highs.
The trend is still positive as they are still setting higher-lows, but they are also stuck in setting lower-highs, so the range is getting very tight. When this happens there will need to be an explosion to release the potential that has built up. Unfortunately, investors can only guess in which direction the move will happen, so betting on it is just that: More gambling than investing.
Bulls in Control of iBio Stock
Source: Charts by TradingView
Nevertheless, all the technical indicators from oscillators to moving averages still suggest that the bulls are in complete control. In theory this means that Wall Street will buy the dips. The problem is that the whole stock market is setting records when they should be more cautious. This overall recklessness poses indiscriminate risk on IBIO stock regardless of its individual story.
The reason we feared the coronavirus is that it was novel. This meant that there were no experts on it or from the stocks of companies that operate within its halo. Do the homework and form your own opinions on iBio. The race for the vaccine is heating up and the big pharma companies like Pfizer (NYSE:PFE) are now making their own headlines. Isett and his team can still succeed because if this virus is as nefarious as the scientists say it is, then there will be room for all effective vaccine businesses to thrive.
Therein lies the risk because for some reason, the medical community is very confident that it is a matter of time before we get one or more. Yet, this would be the first time ever that they succeed in delivering a coronavirus vaccine. I remain a skeptic that we will get one — at least not as fast as they say we will. I do however recognize the upside potential and the benefit to having it.
Success Here Is Important to All of Us
It would be bad juju to bet against iBio stock or its competitors, because it would be wishing sickness on people so the thesis to trade it is easy: Either buy it on faith that they will succeed, or you don’t and cheer for it from the sidelines. Shorting these headline stocks is not only inhumane but also hazardous. Case in point: the move in Novavax (NYSE:NVAX) stock from almost de-listed status to over $100 per share.
Technically the iBio bulls have help. The price action is constructive because it has set a solid bottom in April. Since then the dips are shallower and now price is challenging a top just above $2.50. These are resistance zones until they break, then they become triggers for more buyers to chase the stock higher.
The first mega spike came and went in March, and it was so massive that usually it would break the stock. Not this one. It recovered and remounted almost as impressive a rally into the end of June. This behavior shows maturity not typical to such wild headline stock like iBio. All this is to say that the bulls are still in complete control of it and only failure could break them.
Caution Is Key Especially at These Levels
This is a low dollar stock but that doesn’t mean that it is cheap. It is extremely expensive since its stock price is more than 20 times its sales. But valuation is in the eye of the beholder because it all hinges on the outcome of the project. It is a hit-or-miss in the end so binary bets like these are speculative parts of a conservative portfolio. Furthermore, there is extrinsic risk from the entire market as the economy approaches a stimulus cliff soon.
Sizing is important and the risk has to be relatively small since conviction in the success is by definition low. When I buy the shares, I don’t know any more than the people selling them to me, so I should not assume that I know more than they do. With the lack of “edge” comes humble expectations.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.