Buy the Dip on This Pharma Stock

A continued short squeeze could propel IMMU even higher

Managing Editor
Jul 24, 2018 at 2:59 PM
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Shares of Immunomedics, Inc. (NASDAQ:IMMU) are down 5% at $24.58 in afternoon trading. This negative price action is a rarity for the drug name, and could be a buying opportunity for bulls to get in on the longer-term rally. The stock has picked up 174% over the past 12 months alone, with pullbacks contained by its 120-day moving average, and IMMU peaked at an 18-year high of $27.33 just last week. Plus, according to data from Schaeffer's Senior Quantitative Analyst Rocky White, it could be time to buy call options on Immunomedics.

Unusually low volatility expectations are being priced into near-term IMMU options, based on its Schaeffer's Volatility Index (SVI) of 53.3% -- ranking in the low 6th annual percentile. The last six times IMMU has traded within 2% of its 52-week high while sporting an SVI in the bottom 20% of its annual range, it's produced a positive one-month return each time, averaging a gain of 14.8%. In fact, since flashing a similar buy signal back in May, Immunomedics shares have rallied nearly 27%.

Daily Chart of IMMU with 120 MA

It's not surprising to find that analyst attention has been extremely bullish toward the pharmaceutical stock. All four firms covering IMMU carry "strong buy" recommendations, and the stock's average 12-month price target of $36 is a 47% premium to current levels.

However, a continued short squeeze could propel the shares even higher. Immunomedics' short interest fell 15% during the past two reporting periods, but still represents more then 21% of the stock's total available float. At IMMU's average daily trading volume, it would take more than seven sessions for shorts to cover their remaining bearish bets.

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