Though the overall market can't seem to get its bearings, a handful of stocks appear to know exactly where they're headed. Lexicon Pharmaceuticals, Inc. (LXRX), MCG Capital Corporation (MCGC), Zhone Technologies Inc. (ZHNE), and Vista Gold Corp. (VGZ) are setting up some pretty decisive moves. Here's what's apt to happen next, and what you need to know about it.
While one doesn't usually think of a private equity firm's stock/fund as being technical analysis-friendly, the same rules, odds, and movement tendencies still apply. That's going to be good news, of you're a current or prospective owner of
MCG Capital Corporation (
MCGC).
The fact is, MCG Capital shares have been range bound of late, between $2.77 and $3.16. The upped edge of that zone was broken today, in spades, with the stock's move to (so far) a high of $3.46. Coincidentally -
or perhaps it's not a coincidence - that's the other big resistance line MCGC has been dealing with, though the fight goes all the way back to last September.
Bottom line? It's no secret private equity opportunities are improving, so it makes since that of MCG Capital shares are perking up. We're taking this attack on resistance at face value, and calling it bullish... though bear in mind it hasn't materialized yet.
(That may be a good thing though, as it gives MCGC a chance to build a base before making the next leg higher.)
Vista Gold Corp. (
VGZ) may be one of the only gold-related stocks that's truly been struggling the last few days. The fact that it's sinking despite having the bullish precious metals wind at its back makes the pattern that much more bearish.
The trigger was the way VGZ fell under recent support at $2.25 by sinking to a low of (so far) $2.22. However, it's worth mentioning that Vista Gold shares started to pull back only when the stock peaked at $2.82 earlier in the month; that's the third time the mid-$8 level has been a ceiling, so this dip is more than just a little volatility.
As for a landing spot, the $1.50 is the lower edge of the same horizontal trading range, though Vista Gold has also developed a rising support line since June's low. It's currently at $1.83. Both are marked on the chart, as both could halt the decline.
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Just in the interest of fairness, we actually took a bearish tilt on
Zhone Technologies Inc. (
ZHNE) back on September 10th. The downtrend never really developed though, so much so that the stock is now starting to renew the prior uptrend.
Though the risk inherent within owning Zhone Technologies shares is still great due to a major overbought situation, we've seen higher highs and higher lows ever since the low of 50 cents was hit about a week ago. The lower, long-term support line(s) around $0.35 were never tested... which is where the risk is.
On the other hand, the prior resistance line that was broken in late August may have become a support line now; that's where Zhone shares bounced a few days ago.
Bottom line? The bulls are back in charge of ZHNE now, and they're flowing into the stock with some pretty good volume.
And finally,
Lexicon Pharmaceuticals, Inc. (
LXRX) gets the honor of being today's 'low hanging fruit'. That just means this is a high-odds trade, though the payoff isn't huge.
To make a short story even shorter, LXRX just gapped and ran up too far on Tuesday after the biotech company announced its diabetes drug study had met its safety goal. Yes, it's good news, but the drug is still years away from even being close to being marketed. Moreover, just because it's safe doesn't mean it's effective (though it does show some promise).
That's not to say Lexicon Pharmaceuticals is a bad company, nor is it to say that LXRX is a bad investment. We're just saying the market got a little too excited for a poor reason. As the euphoria wears off, the stock's apt to fall back to prior levels. That won't be a home run move, but it will be a high-odds move.
If you'd like to know of any changes in our opinion of MCGC, LXRX, VGZ, and ZHNE (or if we officially recommend them as trades), be sure to sign up for our free newsletter today. It's delivered 2 to 3 times per week.
