Not All Biotech Stock Surges Are the Same: KERX Versus ABIO

Jan 30, 2013 7:08:08 AM PST | 480 View(s) | No Comment(s) - Post a Comment Rating

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StockHQ:

KERX
$7.56 +$0.26 +3.55%
ABIO
$1.38 -$0.02 -1.43%

Just for the record, yes, I was the same guy who advocated taking your profits on Keryx Biopharmaceuticals (NASDAQ:KERX) a couple of days ago. Though I knew doing so might leave some money on the table, better to leave some on the table and put some in your pocket than it is to leave it all on the table and end up putting none in your pocket. And, with as overbought as KERX was at that time, I had no problem locking in the gain... when the risk/reward scenario for Keryx changed.

I don't feel the same about Arca Biopharma Inc. (NASDAQ:ABIO) though. Yes, ABIO is up a ridiculous 51% (on admittedly good news), versus a 70% from KERX the day before I said sell it, which was followed by another 40% pop after a I said to take profits on Keryx Biopharmaceuticals. KERX is up a little more today, so one could argue tat I was a day early on the exit. But - and like I said above - I don't see the same problem with Arca Biopharma that I saw with Keryx.... namely, the fact that it was sooooo overbought.

Don't misunderstand. Arca is still overextended in the very short run, and due for a dip - mainly to close most (if not all) of the gap it left behind this morning. When you take a step back and look at the bigger picture though, it's quite clear that ABIO only started to run with any real gusto this morning, whereas, KERX had already rallied a great deal before it was time to lock in the gain. Indeed, the shape of the Arca Biopharma is still very tempting.

The nearby image says it all. Even with today's surge, ABIO is still very much near multi-year lows, and just starting to make the ascension side of a prolonged bowl-shaped rebound; there's plenty of room to run. The consolidation period in December and January made today's surge just that much sweeter.

That's in sharp contrast with what we were seeing from Keryx Pharmaceuticals shares yesterday. The KERX chart was a mess to begin with, and after this week's romp, is into new multi-year high territory.

None of this is to say that ABIO is a buy right now. Today's surge is also apt to be met with a little bit of profit-taking too. But, a dip from Arca Biopharma Inc. from here is a buying opportunity, as support is nearby. A pullback to $0.41 (where the 200-day line and all that consolidation is) and then a rebound move would be a perfect entry point, though even a modest pullback and then a bounce effort would be fine. A pullback to any meaningful support from Keryx, on the other hand, would be catastrophic.

Moral of the story? Timing is everything, especially in the world of biotech.

Bryan Murphy is a paid contributor of the SmallCap Network. Bryan Murphy's personal holdings should be disclosed above. You can also view SmallCap Network's complete disclaimer and disclosure.