In a perfect world, a stock would drop crystal clear hints that it was going to move higher. Or, it would already be in a reliable uptrend - all you need to do is step into the rally. Unfortunately, we don't live (or trade) in a perfect world, and NPS Pharmaceuticals, Inc. (NASDAQ:NPSP) isn't dropping clear hints, nor is it in a solid uptrend. NPSP is, however, a great-looking 'buy' opportunity right now.
It can be dangerous to catch a falling knife, literally or figuratively. If you can do it successfully in the stock market though, you can get into a deeply-undervalued stock at just the right time. As of right now, NPS Pharmaceuticals has dropped a couple of subtle hints that the knife has stopped falling, and it's time to start grabbing.
The nearby chart tells the tale. NPSP has been in a downtrend since early December, falling from a high of more than $10.00 then to a low of $7.55 on Friday. Take a look at what happened on Friday though. The stock bounced back to close in the middle of its trading range for that day.
Also notice the volume surge for that particular day. That surge implies a big flushout of all the remaining owners who had finally reached their pain threshold, and just decided to dump it. That volume surge coupled with the intraday rebound, though, also suggests NPS Pharmaceuticals, Inc. drew a bunch of the would-be buyers in... the one's who were sitting on the fence waiting for a great price. Anything under $8.00 seems to be good enough.
In simpler terms, Friday's bar is the pivot - the transition from net-bearishness to net-bullishness. Now that the market has seen the bullish hint from NPSP, it's very likely they'll follow through with more bullish pressure today (not wanting to miss out on the impending rebound). A self-fulfilling prophecy? Yes, but one that's trade-worthy all the same.
NPS Pharmaceuticals is a clinical stage biopharma. Its primary developments are GATTEX, a phase 3 drug to treat for short bowel syndrome, and Natpara, which is a recombinant human parathyroid hormone 1-84, also in Phase 3 trials. NPSP is also working on NPSP790 and NPSP795, which are calcilytic compounds in phase I trials for the treatment of endocrine disorders. The stock's recent decline was predictive of disappointing revenue results that were officially reported last week. Gattex, which was only approved last year, didn't launch as well as hoped, and the market made it clear it wasn't happy. The 26% decline, however, seems to be overdone, and the recent action from the chart suggests the market is starting to realize the sellers overshot.