Overbought Calithera Biosciences Inc (CALA) Plunges Ahead of Earnings

Wall Street is reacting poorly to Calithera Biosciences Inc's (CALA) latest drug data

by Alex Eppstein

Published on Nov 9, 2015 at 11:31 AM
Updated on Jun 24, 2020 at 10:16 AM

Calithera Biosciences Inc (NASDAQ:CALA) is getting pummeled, with JMP Securities analyst Michael King attributing the plunge to the company's weekend presentation of data on CB-1158, a cancer drug. At last check, the shares are down over 16% at $8.40. This represents quite the turn for a stock that's been sizzling on the charts in recent months.

Prior to today, CALA had more than doubled since hitting a record low of $4.31 in late August. On a relative-strength basis, the shares had outperformed the broader S&P 500 Index (SPX) by 87.3 percentage points, when looking back 60 sessions. As such, the equity's 14-day Relative Strength Index (RSI) was sitting at a lofty 80 -- in overbought territory -- which could play a role in today's drop.

Far from spooking short sellers, the steep ascent has actually triggered a rash of bearish betting. Short interest is currently just off record levels, with more than one-fifth of CALA's float sold short. At the stock's typical trading volumes, it would take over two weeks for the shorts to cover their positions. Today's plunge is a welcome development for these bettors, though the stock is currently short-sale restricted.

Digging deeper on the charts, CALA's earlier losses were contained by their 60-day moving average. Now, the shares are trying to maintain a foothold atop their 20-day trendline, which has acted as support since early October.

It's not clear how long that foothold will last. Calithera Biosciences Inc (NASDAQ:CALA) is scheduled to report third-quarter earnings tonight, and last time around -- the company's inaugural turn in the confessional -- the stock plunged 13.4% in the ensuing session. Based on near-term at-the-money straddle data, the options market is predicting a more than 20% post-event move.

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