The novel coronavirus has been a gamechanger for specific biotech companies. Co-Diagnostics (NASDAQ:CODX) is the poster child for the profits that await those that are able to participate in the fight against the virus. The Salt Lake City-based molecular diagnostics company has seen its share price explode this year after its Covid-19 test technology was validated for use on saliva samples. CODX stock is up 18-fold in 2020.
But not everyone is happy with Co-Diagnostic’s representation of the test’s efficacy. In a proposed class-action lawsuit filed in Federal Court on Monday, Gelt Trading Ltd alleged the stock’s meteoric rise and sharp two-day crash on May 14th and 15th was due to the company’s false claims that its Covid-19 tests were “100%” accurate.
From my perch, it seems like Gelt Trading Ltd bought near the $29.72 peak and isn’t happy about the steep price drop. I wonder if their ire would have risen to the level of a lawsuit if they had bought at lower levels and were sitting on a profit.
At any rate, the market doesn’t seem to care one whit about the news. CODX stock is trading unchanged in early morning trading and volumes since the suit was filed remain normal.
The Nature of Speculative Stocks
Before diving into the technicals, there are a few things worth mentioning when trading shares of a company like Co-Diagnostics.
First, in case it wasn’t obvious by the almost 1,800% rise in 2020, this is a highly speculative stock. No one knows the endgame of the pandemic. The competition among biotech companies to discover the most effective tests and treatments is intense. CODX stock is being treated like a prince today, but it could quickly become a pauper if its luck turns. The elevated risk should be taken into consideration when sizing your positions.
Second, news trumps technicals. No matter how powerful the trend or pivotal the support zones, if adverse headlines arrive, investors will flee Co-Diagnostics stock.
With both disclaimers in mind, let’s take a closer look at the price charts.
CODX Stock Charts
On a day-to-day basis, these shares can be a whippy monster. It’s situations like this where the weekly time frame can really help put the noise into context.
Here’s what I see — a clear uptrend all year long. Sure, some of the candles are massive, and we have a few wicked wicks, but overall the pivots are ascending, and the 20-week and 50-week moving averages are climbing in support. The volume patterns also look healthy, with accumulation days outpacing distribution days by a wide margin.
As harrowing as the mid-May two-day crash was, it didn’t change the trajectory of the daily trend, which is impressive given that the stock was down almost 50%. What it means is that the drop started from the stratosphere. That’s the only way you can get cut in half and still be in an uptrend. I’d pitch the selloff as a correction to the exuberance that jammed the stock into orbit. Aside from that one week of insanity, the price action has been quite orderly.
The past month has seen a steady drip lower to the rising 50-day moving average. We’re also at an exciting price zone that is acting as support so far.
Earlier in the year, $15.50 was resistance, but the old ceiling has become a new floor. The lower end of the support area is $15 and is the line in the sand I would anchor to. If we remain above it, stay bullish. If we break below it, turn bearish.
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