I’m Selling Into Strength, But Watching This High-Risk/High-Return Stock
Here’s how I’m playing a solid reaction to the Iran deal but no euphoria.
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Investors are enjoying solid gains on Monday morning following the announcement of a deal with Iran. Since the news was well anticipated, there hasn’t been a euphoric response, but neither has there been any sign of sell-the-news so far.
Breadth is running about 64% positive with about 300 new 12-month highs to 50 new lows. The Russell 2000 (IWM) small-cap index is lagging with a gain of about 0.8% while the Nasdaq 100 (QQQ) is leading with a gain of 2.6%. Technology is the winner, while interest rate-sensitive names are lagging a bit.
Buyers are more focused on technology with the strongest growth, rather than on names that might benefit from lower interest rates and inflation. Chasing technology is the easier trade because it is being lifted by relative strength, but it is also the group with the greatest risk of heightened volatility.
Reducing Into Strength
I’m taking a conservative approach and have reduced about a dozen positions into strength. My cash levels are now over 40%.
My primary focus is keeping accounts close to highs. Roku (ROKU) and some big bounces in small biotechs, Xeris Biopharma (XERS) and Precigen (PGEN), have been helpful. I sold Roku on the announcement of a $160 per share takeover by Fox Corp. (FOXA), a cash-and-stock deal valuing Roku at roughly $22 billion.
Definium Therapeutics
While I’m reducing my risk levels, I’m also looking at some potential buys. One chart I like is Definium Therapeutics (DFTX).
Definium Therapeutics, formerly known as MindMed (which traded under the ticker MNMD), is a late-stage clinical biopharmaceutical company developing a pharmaceutically optimized form of LSD (DT120, also referred to as lysergide tartrate) as a treatment for generalized anxiety disorder, major depressive disorder, and eventually PTSD. What differentiates DFTX is its mature pipeline, with four Phase 3 trials underway, and a solid balance sheet.
On April 18, the White House issued a major executive order aimed at accelerating mental health innovation and expanding access to psychedelic-based medical treatments for severe mental illness. The order directly addressed regulatory roadblocks and fast-tracking research for therapies targeting the underlying causes of psychiatric conditions. With DFTX already holding a Breakthrough Therapy designation, analysts interpreted this executive order as a major de-risking event for the upcoming Phase 3 readouts, effectively putting the federal government’s weight behind the regulatory pathway the company is on.
DFTX has three pivotal Phase 3 readouts expected over roughly the next two quarters: the Emerge study in MDD around mid-year, the Voyage study in GAD in early Q3, and the Panorama study in GAD in late Q3. Analysts are optimistic heading into the data, with a consensus Buy rating and an average price target near $38.
I’ve been actively trading DFTX and am watching for another push higher in front of the phase 3 news. This is a high-risk/high-return play, and holding into binary events carries significant risk.
Strategy
My overall strategy is to play tough defense. I’m concerned that, with the Iran situation heading toward a resolution, there isn’t any other immediate positive catalyst, and that the deal may see some setbacks before it is finished. While the end of the Iran issue is a positive, the market has been anticipating for a very long time and much of the benefits are already discounted.
I’m not bearish, but I am going to be selective and trade tightly as the market digests Iran, SpaceX (SPCX), and the Fed meeting later this week.
At the time of publication, Rev Shark was long XERS, PGEN and DFTX.
