STRATEGIES

With biotech rallying, investors who really want some bang for their buck should consider three smaller (but more risky) stocks, each one featuring strong charts and low price tags.

The S&P Biotechnology Index bottomed at 929 on February 24, just three days after the S&P 500 peaked at 1344.03. Biotech then continued to move higher over the next few weeks as the overall market was declining.

Since the close on February 24, the biotech group is up 13.2% while the S&P 500 is just 3.1% higher.

Big biotech companies like $52 billion Amgen (AMGN) get the lion’s share of the attention from the press and investors when biotech sector moves. Though AMGN looks positive technically after Tuesday’s 2.8% gain, it is up just 10.3% from its March lows.

Much smaller Dendreon (DNDN), a stock I recommended on March 25, is still a $5.2 billion company, and from its March lows, it is up a robust 29.2%.

But the real bang for your buck—which is accompanied by much higher risk—is in the smaller biotechnology companies. For example, Spectrum Pharmaceuticals, Inc (SPPI) is just a $500 million company, one tenth the size of DNDN, and one hundredth the size of AMGN. From its March lows, SPPI is up 46.3%.

The three biotech companies under $7 I will look at today all have compelling technical patterns, but they are appropriate only for the most speculative part of your portfolio. In addition, one biotech giant I earlier recommended avoiding now looks attractive for new positions.

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Chart Analysis: Oncolytics Biotech, Inc (ONCY) is a $400 million, Canada-based company that develops viruses as potential cancer therapeutics. It is the least liquid of the three stocks, trading around 150,000 shares daily. ONCY peaked early in the year at $6.95 and this week has dropped close to the 38.2% retracement support at $5.20.

  • The weekly uptrend (line a) is in the $5.10 area with the 50% support at $4.70

  • Weekly on-balance volume (OBV) did confirm the December highs (line b) but then dropped below its weighted moving average (WMA) in early January. It is still below its WMA, while the daily volume (not shown) has just turned positive

  • There is initial chart and retracement resistance at $6.12 with stronger resistance at $6.34

  • A daily close above $6.55 should confirm that the correction in ONCY is over

Repros Therapeutics, Inc. (RPRX) is a very small ($70 million) developmental-stage biopharmaceutical company that concentrates on developing small molecular drugs for both male and female reproductive disorders. It trades 470,000 shares daily and is due to report earnings on May 9.

  • The weekly chart shows a wide range this week, and a close above $6 will strongly suggest the uptrend has resumed. There is weekly chart resistance at $6.70-$6.85

  • The spike high in 2010 was at $9.92 and RPRX traded over $55 per share in early 2009

  • The weekly OBV shows very strong accumulation since late 2010 and is still in a very bullish uptrend

  • The volume has picked up nicely over the past two days, suggesting that the short-term pullback is over

  • There is initial support now at $5.80-$6.00 with stronger support at $5.20-$5.40

NEXT: Another Hidden Treasure in Biotech; How to Profit  

Tickers Mentioned: Tickers: IBB, ONCY, RSPS, CRIS, DNDN