Biotech Could Burst Higher, Says Signal

A short squeeze could fuel more upside for ACAD too

Lillian Currens
Jun 29, 2020 at 3:50 PM
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The shares of ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) have been trading in a channel of higher highs lately, contained by the $45 and $50 levels during the past three months. The stock has made several attempts to topple this upper level, with its last attempt putting it at a record high of $53.75, before a swift pivot back down the charts. This most recent pullback, however, put the security face-to-face with a historically bullish trendline that, if past is precedent, could sent ACAD back in the direction of its record highs. 

Specifically, the biotech pulled back to its 80-day moving average after a length period north of the trendline. According to a study from Schaeffer's Senior Quantitative Analyst Rocky White, the security has come within one standard deviation of this trendline five other times in the past three years. ACAD was higher one month later after four of these signals, and averaged a one-month return of 3.4%. A similar move from its current perch of $48.32 would put the security right back below the $50 mark. 

Short interest is starting to unravel, down 0.2% in the last two reporting periods, though there's still plenty of room for a short squeeze to propel the stock higher. The 11.49 million shares sold short make up nearly 8% of ACAD's available float and would take almost two weeks to cover at the equity's average daily pace of trading. 

For those wanting to speculate on ACAD's next move, options look like a prudent play right now. ACADIA's Schaeffer's Volatility Index (SVI) of 64% stands higher than just 21% of readings from the past year. This means options players are pricing in relatively low volatility expectations at the moment.  


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