Jaguar Health Is on a Noble Mission But the Stock Needs a Nudge

It used to be that pharmaceutical and biotech stocks were the wild bunch. But these days it is like the Wild West on Wall Street. Case in point what happened yesterday in Rocket Mortgage (NYSE:RKT). The authorities need to get the handle on these manipulations before more serious damage occurs. RKT almost doubled in minutes and out of nowhere. Meanwhile, Jaguar Health (NASDAQ:JAGX) stock was trying to find footing near $2 per share.

stock market icons of a blue bull and a red bear (overvalued stocks)
Source: Shutterstock

Investors need to pay special attention when trading low dollar stocks like these. It’s easy to think of them as harmless because of the low face value. In reality, they still carry the same 100% risk as any other stock.

Today we will examine the trading opportunities that are in JAGX stock for the next six months.

Focus on Trading

If you notice that I said “trading” not investing. I am never a fan of stocks that have massive all time highs. This one logs its above $7,400 per share. Clearly this means that there is more to the story than what’s on the surface.

Usually this is the byproduct of reverse splits. Novavax (NASDAQ:NVAX) did one recently where they took 20 shares and made them into 1. That’s a strategy to stave off de-listing from the big boards.

I admit that I am not an expert on pharmaceuticals but the story for JAGX seems easy. It serves or aims to serve  somewhat narrow markets. Currently, they have one approved drug and they are trying to expand its uses. There might even be an opportunity for that to help with the recovery from the novel coronavirus. But it doesn’t change the fact that Jaguar Health is a niche player. Investors should have realistic expectations from here.

Before I say more about this and sound too negative, I’d like to make a point. I applaud Jaguar’s goals because they are bringing or trying to bring relief to beings who could use it. I am definitely and wholeheartedly pulling for their successes. The company goals are noble. They seek to heal humans and dogs as naturally as possible. These are signs of a progressive management team. They are also making moves with SPAC strategies to capitalize – pun intended – on current trends.

Investors in JAGX Stock Must Have Realistic Expectations

Jaguar Health (JAGX) Stock Shows Some Support Below
Source: Charts by TradingView

The FDA has approved Mytesi (crofelemer) to help relieve diarrhea in adults with HIV/AIDS. Jaguar also has a subsidiary company called Napo, which seeks to provide gastrointestinal pharmaceuticals. This sounds great in theory, but it’s also a lot of hope on future successes in relatively small market scopes. I don’t mean to demean their efforts, however, it’s important to lay out the potential opportunity size.

Therefore, my conclusion for JAGX stock is binary. Investors can buy it and hope for another miracle to pop. Or in the meanwhile, there could be good opportunities to trade the short-term action.

For practical matters, spikes like what recently happened would be great exit points, not entries. Investors who chase late usually get hurt. This is where chart reading skills come in handy. The 500% January rally was a gift. Giving back some if it would have been normal, but in this case they fell too far. JAGX stock should have found better support near $2.80 per share. They tried but once they failed, they triggered a second leg lower. The bottom from last week is where they are trying to find footing now. Therefore, losing $1.80 per share could trigger even more downside.

The Jan. 4 candle was massive and somewhere in the middle of it lies another set of buyers. If the selling continues, my bet is that JAGX will find support near $1.30 per share. In the last three months, much of the volume happened near 80 cents per share. Clearly, traders need to be realistic with the levels of their conviction. There should be a healthy amount of doubt in every thesis. This is how investors stay out of serious trouble.

Time for Options?

This is where I usually suggest using the options markets to build buffers. But in this case, the ones for JAGX stock are too thin. There isn’t enough action on them to make that a viable thesis. Luckily, the stock price is low enough that it’s not much of an advantage to use options instead of stock.

On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. 

Nicolas Chahine is the managing director of SellSpreads.com.

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