Is it possible for a stock to rally too well? It depends who you ask, though few would deny that a rapid runup presents an overbought problem. Such is the case with Trius Therapeutics, Inc. (NASDAQ:TSRX) right now. Shares has rallied from $5.47 back on the 5th to the current price of $6.91 - a 26% surge in less than two weeks. It's a great move to be sure, but also the kind of move that encourages anyone who got into TSRX just a few days ago to get out while they can.
If the ticker rings a bell, it may be because yours truly penned some optimistic comments about the TSRX chart.... back on the 5th, when it was trading $5.47. The stock has just crossed back above the key 200-day moving average line, but more than that, had logged a string of higher lows and higher highs since the December bottom. In sum, it all suggested Trius Therapeutics was ready to rally again.
Everything is relative though, and temporary.
As it stands right now, TSRX is overbought in the short-term, and some would argue that it's so overbought in the short-term timeframe, it's even overbought by long-term standards. It wouldn't be hard to believe either. The stock's at new 52-week highs, and it's not like it has a history of hanging on to these big gains... at least not straight-away. If anything, Trius' history would suggest taking the money and running (to the sidelines).
Just for the sake of clarity and fairness, that's not a judgment call on the company's merits. Trius Therapeutics has developed a pretty impressive therapy for the methicillin-resistant strain of MRSA (aks 'staph'), and the FDA is scheduled to make a final ruling at the end of this month; it looks like the market's looking for an approval. But, that excitement has caused something of a disconnect between the stock and the underlying company, and now that TSRX is doing its own thing, trading it is more a game of psychological chess than it is about value... verybody wants to ride the rally, but nobody wants to be left holding the bag once traders realize the rally is overextended and start to bid it down again.
That volatility - and a pullback in particular - may work to your advantage though. Should Trius Therapeutics shares stumble here (and that's looking likely), that dip would be an excellent entry point, in front of a potential rebound. As for any further upside from TSRX from here though, that's tough to imagine... and this is coming from an observer who loved the stock just a few days ago.
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