Investors were mad as all heck Wednesday at biotech Cassava (NASDAQ:SAVA). But what about tomorrow and the day after? Is there a chance SAVA stock is offering today’s investors a buying opportunity amid the fallout?
As a group, investors can be quick to forget the facts behind any given day’s determined buy-and-sell actions. And Wednesday’s swoon of about 31% in shares of SAVA certainly falls into the category of committed selling.
But could SAVA stock investors be persuaded to quickly forget the driver behind yesterday’s wrecking of shareholder value?
Exodus From SAVA Stock
Behind the anxious exodus, Cassava shareholders awoke to word the company’s hopeful Alzheimer’s drug isn’t all it’s cracked up to be.
Shareholder rights firm Labaton Sucharow announced a whistle blower submission warning of multiple counts of fraudulent data manipulation and misrepresentation by SAVA during its drug trials.
In brief, the firm is questioning the authenticity of Cassava’s biomarker data and its analyses of human brain tissue with scientific misconduct behind favorable hypotheses.
The announcement didn’t go unchecked. In response Cassava went on record stating it “stands behind its science, its scientists and its scientific collaborators.”
Is that it? For now it is, and that brevity and lack of actual evidence is worrying. Unfortunately, this type of shot over the bow doesn’t lend itself to the presumption of innocence until proven guilty.
Given the damning allegations from an apparent inside source rather than a self-serving bearish fund looking to cash in on a short position, investors would do well to avoid SAVA stock, until and if, the company can produce physical evidence to the contrary.
If you’re not convinced this is simply one of Wall Street’s many overreactions, then consider this before buying SAVA stock: After 20 years, SAVA has no other marketable drugs in its portfolio.
Furthermore, with shares fetching just $3 one year ago but today trading around $81 and valued at $3 billion pinned to its Alzheimer’s drug approval, there’s obviously a great deal of risk still embedded in SAVA stock which bulls need to be mindful of.
SAVA Stock Monthly Price Chart
Source: Charts by TradingView
As the saying goes, where there’s risk, there’s reward. Looking at the provided monthly chart of SAVA stock, investors should be fully reminded of those words.
On the one hand, shares are now in a key testing position of uptrend support backed by four Fibonacci retracement levels tied to two cycle lows over the past 18 months.
It doesn’t take a rocket or an Alzheimer’s scientist to realize the opportunity at hand for buyers of SAVA if the bullish trend remains intact.
Alternatively and to be respected, given the stakes in Cassava’s Alzheimer’s drug, SAVA stock remains overbought outside the monthly chart’s upper Bollinger band.
Additionally, stochastics is also warning of an excessive situation following a more friendly bullish momentum phase.
In closing, biotechs are inherently risky. And today with Theranos-style allegations on the table, a straight-up purchase of SAVA is strongly cautioned against. As well and with Cassava’s options also lacking reasonable liquidity, I’d warn against other hedged-type strategies too.
On the date of publication, Chris Tyler did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.