Kite Pharma, Inc. and bluebird bio, Inc. Higher on Collaboration News

Cancer drug collaboration news push Kite Pharma Inc (KITE) and bluebird bio Inc (BLUE) higher

by Mark Fightmaster

Published on Jun 22, 2015 at 1:30 PM

This morning, Kite Pharma Inc (NASDAQ: KITE) and bluebird bio Inc (NASDAQ: BLUE) announced that they are going to team up to develop and market T-cell therapies for human papillomavirus (HPV). HPV is the most common viral infection of the reproductive tract, and it is believed to cause as much as 70% of cervical cancers. In addition, HPV may contribute to other urogenital cancers.

While both stocks have backed off from their intraday highs, both are trading higher. We could be seeing a bit of a short-covering rally from each of these biotech firms. BLUE sports a short-interest ratio of 2.40 with nearly 8% of its float sold short. KITE may have a bit more momentum to fuel a short-covering rally, as 16% of its float is sold short and it would take nearly four days for the bears to buy back their shorted shares, at average daily trading volumes.

The pessimism from the short sellers is a good sign for both firms, as it could be fueling a sustained move higher. The biggest sentiment danger for this duo comes from analysts. BLUE has nine analysts tracking it and KITE has five. It isn't a lack of coverage that is the potential problem, it is the fact that all of these analysts rate the respective firms as "strong buys." These rankings allow a lot of room for downgrades -- should the stocks reverse course -- which could push the shares lower. (For more on how we use analyst rankings in our trading here at Schaeffer's, click here.)

Technically, bluebird bio Inc (NASDAQ: BLUE) could be headed back toward an all-time high, as it is riding along support from its 10-week moving average. The last time this trendline was breached on a closing basis was in late February. Watch for continued support, although the stock could stagnate a bit – it is currently trading at $180.81, while the trendline is approaching $170. Similarly, KITE's 10-week moving average may provide support if needed. This moving average acted as rather solid resistance throughout the early part of 2015, but it now has a chance to flip roles. Should the moving average make a substantial turn higher, it could help Kite Pharma Inc (NASDAQ: KITE) advance through potential resistance at the $70 level. At last check, KITE was trading at $66.28.

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