Overbought Calithera Biosciences Inc (CALA) Plunges Ahead of Earnings

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

Nov 9, 2015 at 11:31 AM
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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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