Investors Turn Bullish on This Biotech Stock Heading Into Catalyst
Breadth holds up while chips fall, and this biotech chart is setting up ahead of earnings season.
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For the third Monday in a row, early strength is sold aggressively. The good news is that breadth is still quite positive at around 64% gainers due to strength in the Russell 2000 (IWM). The problem is technology names once again. Chips are down 3% and the Nasdaq 100 (QQQ) is slipping 0.4%. The S&P 500 (SPY) splits the difference and is close to flat.
Oil is substantially weaker, which is helping bonds and that is what is driving most of the market strength. Don’t forget we have the Federal Reserve interest rate decision coming up on Wednesday and uncertainty about what it does is higher than usual.
There is a lot of random trading action and it’s tough to find sustained moves in either direction. Pockets of speculative strength are still narrow and few names are trading at intraday highs. We have 174 new highs and 134 new lows, which are low numbers on both sides and is indicative of trading range action.
I’m looking to make some positioning moves as we head into earnings season but most of the smaller names that I like still have another week or so before they start to report. I’m looking for good chart setups into reports that I think may have a positive catalyst.
Biotech Setting Up Into Catalyst
One example of a good chart that I see right now is the biotechnology name Candel Therapeutics (CADL).
Candel is developing immunotherapies for cancer that are designed to work off the shelf, meaning they do not have to be customized for each patient the way some cancer treatments do. The lead therapy is known as CAN-2409. This injection turns the patient’s own tumor into a personalized vaccine. It has already produced positive Phase 3 results in localized prostate cancer, and the company plans to file for FDA approval in the fourth quarter of this year. There are additional programs underway in brain cancer and lung cancer.
The stock hit traders’ radar screens on April 29 when the company announced a commercialization agreement with EVERSANA to support a potential U.S. launch. That is the kind of move a company makes when it is preparing to actually sell a drug rather than just develop one, and the market noticed.
The stock has been making stair-step progress since. Follow-up data presented in mid-May confirmed a 39% improvement in prostate cancer-specific, disease-free survival versus placebo. The Q1 report showed a smaller loss than expected and a cash position of $194.8 million, which funds operations into 2028. That last number matters with small biotechs. The companies that run out of money before their drugs reach the market are the ones that destroy shareholders, and Candel has runway well past its FDA filing.
On July 13, Stifel initiated coverage with a Buy rating and a $22 price target, calling the therapy differentiated and versatile. Six analysts now cover the stock with targets averaging around $20, ranging from $9 to $26.
Technically, shares have been forming a near-term descending triangle over the past few weeks and could be building cause for additional upside ahead of the FDA filing later this year. There isn’t any immediate news pending but the setup indicates that investors are expecting something positive in the intermediate term.
I have a position in this name and am watching for opportunities to increase my position.
There are other good charts developing but market conditions are choppy and uncertain so they may require some patience.
At the time of publication, DePorre was long CADL.
