Why I'm Stalking an Entry Point for Mereo BioPharma
There's no way to anticipate how the market will react to Fed comments this week, but I'm hoping for a buyable pullback in this name.
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The market is struggling on Thursday as investors await comments from Jerome Powell on Friday morning at Jackson Hole. Investors and traders have been anticipating Fed rate cuts and celebrating a Goldilocks economic narrative for a couple of weeks now, but technical conditions are ripe for a sell-the-news reaction. Even if Powell is dovish and confirms rate cuts at the next meeting in September, the market has already priced in plenty of positive news.
Market players are positioning in front of the news, with breadth running about two-to-one negative. Money is rotating into some of the favorite big-cap plays again because of the illusion of safety. The Magnificent Seven AI plays are leading, and big caps such as Lilly LLY and Walmart WMT are seeing inflows from big investors looking to park cash in something that may be expensive but has the support of institutional buyers.
The market has had a fantastic run since August 5, 2024, and my main focus now is to be very stingy about giving back recent gains. I made a few premature sales in the last few days, but I am keeping things very tight and have raised quite a bit of cash. My goal is to keep accounts as close to highs as possible.
At this point, I am not buying, but I am stalking entry points in charts I like. Most of them are extended, and they either need to rest or pull back to make better entries.
An example of a stock that I want to add to is Mereo BioPharma MREO. MREO has some potential news catalysts coming up later this year, and I believe it can run up further in anticipation of a potential partnership deal or positive data on its main drug candidate.
Currently, it is sitting at key resistance around $4.50. In view of the current market conditions, it may need more time before it can manage a breakout move. I have a fairly good size there already, but I want to ramp it up when it looks ripe to move. Ideally, it will have a buyable pullback in the next few weeks, but there is no way to know how the market is going to react to Powell on Friday.
There are quite a few other charts that look similar right now. Xeris XERS, for example, is acting much better but is now slightly extended. I want to add to it, but only on dips or after consolidation.
At the time of publication, DePorre was long MREO and XERS.
