This Penny Stock is Worth a Double Take
Penny stocks have been known to be quite a gamble, and some people refer to them as lottery tickets. In many respects, this is true; the investments are really risky but the payoffs can be huge. So when I came across a name like Corbus Pharmaceuticals Holdings Inc (NASDAQ:CRBP), I got excited and apprehensive as CRBP stock is both a biotech stock and a penny stock.
Corbus Pharmaceuticals is a clinical-stage biotech company that is in the development stages of creating commercial products that treat inflammatory and fibrotic diseases. Investors are heavily relying on the approval of one of their drugs that is currently in “Phase 2” clinical trials. The stock is trading at $4.11 and is sporting a market cap of $206.0 million. This places the company in the micro-cap space in which many penny stocks encompass.
The nature of this type of investment is that it is always wise to understand the type of risks involved in penny stocks and biotech stocks. The companies that fall under both labels are considered highly speculative. Penny stocks have been known to have less liquidity and larger bid-ask spends, so getting in and out of positions of size can be difficult. Biotech stocks are heavily reliant on news surrounding U.S. Food and Drug Administration (FDA) approvals and clinical trials. These events can cause great swings in share prices. It is imperative to understand and quantify these risks.
The reason I chose to focus on this investment is not because of the sector or the market cap. This company’s chart lays out a compelling argument, and one that I could not ignore.
The following chart illustrates the bullish trading action that has developed.
Chart courtesy of StockCharts.com
In March, CRBP stock confirmed a double bottom. It is marked by two consecutive bottoms, which are separated by one peak in between. The pattern is confirmed when the share price closes above the peak. A confirmed double bottom is an indicator that signals a reversal of a trend. This was the beginning of the recent move higher.
The price action after the double bottom is extremely bullish. The chart is littered with impulse waves, highlighted in green, that are followed by consolidation waves, highlighted in blue. After a consolidation wave is complete, an impulse wave pushes the stock price to a new 52-week high, and then the process is repeated. The price action suggests that the trend toward a higher price is strong.
The patterns are not the only indicators that are in bullish alignment. The following chart illustrates another bullish signal.
Chart courtesy of StockCharts.com
On April 26, CRBP stock generated a “golden cross” and confirmed the double bottom reversal pattern. A golden cross is a bullish signal that is produced when a 50-day moving average, highlighted in blue, crosses above a 200-day moving average, highlighted in red. Many traders use this signal to confirm that a bull market is on the horizon. Ignoring this signal is never a wise decision, especially if it’s against you.
The Bottom Line on This Penny Stock
Although this biotech stock is very speculative, and the upside potential in penny stocks is large, I always have realistic expectations. The sector and market cap are very compelling, and my opinion will remain bullish on this position until the charts suggest otherwise.
CRBP stock is a very speculative position and may not suit everybody’s needs, but if the medical space is an intriguing investment objective, I suggest you check out the following report that my astute colleague just released: “The Device to Slash Your Health Insurance Bills by up to 75%?” Click HERE for the full report.