How to Trade Cassava Sciences (NASDAQ: SAVA) Now

Today we’ll walk you through a trade idea with Cassava Sciences Inc. (NASDAQ: SAVA) that could deliver up to 45% returns in the next 3-6 months.

Cassava Sciences, Inc., a clinical stage biotechnology company, develops drugs for neurodegenerative diseases. Its lead therapeutic product candidate is simufilam, a small molecule drug, which is completed Phase 2b clinical trial; and investigational diagnostic product candidate is SavaDx, a blood-based biomarker/diagnostic to detect Alzheimer’s disease.

Analyst Ratings

According to TipRanks, 5 analysts are offering 12-month price targets for SAVA in the last 3 months. Four of those analysts rate it a Buy, one rate it a Hold, and none have a sell rating. The average price target offered by these analysts is $154.80, which represents a 91.44% upside from the last price of $80.86.

Why SAVA is trending?

Cassava Sciences’ stock had rallied until early Tuesday buoyed by the news that it reached agreement with the Food and Drug Administration under a Special Protocol Assessment (SPA) for its Phase 3 studies of oral simufilam for the treatment of Alzheimer’s patients.

However, the shares of Cassava spiraled down yesterday in response to a citizen petition asking the FDA to halt all ongoing studies with simufilam while the agency verifies data the company has submitted so far.

The petition submitted by Labaton Sucharow calls into question three major areas of concern and six smaller concerns surrounding the company’s data. The firm claims Cassava engaged in “data manipulation and misrepresentation.”

The most troubling allegations concern heavy reliance on a single academic laboratory run by Dr. Hoau Yan Wang at the City University of New York. According to the allegations, Wang’s laboratory is the only source outside of the company to confirm the foundational science supporting Cassava’s claims.

On Wednesday, Cassava Sciences responded to many of Labaton Sucharow’s allegations. However, in the long list of denials, the company did not explain its apparent dependence on Wang’s laboratory for positive data. Since simufilam is the company’s only new drug candidate in clinical trials, the news of any potential problem can lead to swift and heavy losses.

Interestingly, the company has a history of failed drug. The only contribution to neuroscience by Cassava before simufilam was an abuse-deterrent version of oxycodone called Remoxy. However, the FDA had refused to approve it in 2018.

Despite all the challenges, the facts remain that SAVA and the FDA had already reviewed the 12-month data result of their Phase 2 testing and saw no issues with it. In other words, SAVA’s phase 2 testing was conducted legally with no issues. The speed and ease with which SAVA was able to provide 14 cited rebuttals, as well as the fact that none of the management team has sold any shares, seems to indicate the confidence of the company in the Alzheimer’s drug.

At the moment, there’s no cure for Alzheimer’s. However, Cassava Sciences’ simufilam has shown “significantly improved cognition in Alzheimer’s patients, with no safety issues,” as noted in a company press release. With a Phase 2 success and the potential for even more success in Phase 3, the company has potential to reach sky-high price targets.

For those not interested in watching the biotech’s story play out from the sidelines, here’s how to trade SAVA now.

SAVA Chart

On analysis, the daily chart of SAVA shows that there are multiple bullish indications for the stock.

#1 Stock on An Uptrend: The daily chart shows that the stock is currently on an uptrend, as it has been forming higher highs and higher lows for the past several months.

#2 Trendline support: The daily chart shows that the stock has currently taken support near the short-term uptrend line, which is marked in purple color. This seems like a good area for the stock to bounce higher.

#3 Oversold RSI: The daily chart shows that the RSI is currently near oversold levels. This points to the possibility of an upcoming price reversal.

However, there are also multiple bearish indications for the stock, like bearish Aroon, bearish MACD, and bearish stochastic.

Below is the bullish and bearish play for SAVA.

Recommended Bullish Trade (based on the chart)

Buy Levels: If you want to get in on this trade, you can purchase the shares of SAVA in the following scenarios.

• Buy Level #1: The first buy level for SAVA is if it corrects to the price of around $69.00 and takes support there.
• Buy Level #2: The second buy level for the stock is above the price of $86.00.

Important Note: Make sure that you only enter the trade once the daily close is above the recommended price level.

TP: Our target prices for various buy levels are as follows

• The target prices for Buy Level #1 ($69.00) are $85 and $100 in the next 3 to 6 months.
• The target prices for Buy Level #2 ($86.00) are $110 and $120 in the next 3 to 6 months.

SL: To limit risk, place a stop loss at the following levels.

• The stop loss for Buy Level #1 ($69.00) is $60.00.
• The stop loss for Buy Level #2 ($86.00) is $73.00.

Note that the stop loss is on a closing basis.

Target Upside: Our target potential upside is 23% to 45% in the next 3-6 months.

• Entry at Buy Level #1 ($69.00): For a risk of $9.00, our first target reward is $16.00 and the second target reward is $31.00. This is a nearly 1:2 and 1:3 risk-reward trade.
• Entry at Buy Level #2 ($86.00): For a risk of $13.00, our first target reward is $24.00 and the second target reward is $34.00. This is a nearly 1:2 and 1:3 risk-reward trade.

In other words, this trade offers 2x to 3x more potential upside than downside.

Risks to Consider: The stock may reverse its overall trend if it breaks down from the various support levels with high volume. The sell-off of the stock could also be triggered in case of any negative news, overall weakness in the market, or any regulatory changes in the sector.

Recommended Bearish Trade (based on the chart)

In case the stock breaks down from the long-term trendline (marked in blue color), it would point to an upcoming short-term correction. In that case, below are the entry level, stop loss level, and target prices.

Sell Level: You can take short positions on SAVA below the price of around $64.00. This sell level is marked as a red color dotted line in the chart.

Important Note: Make sure that you only enter the trade once the daily close is below the recommended price level.

TP: Our target prices are $55 and $45 in the next 3-6 months.

SL: To limit risk, place a stop loss at $69.00. Note that this stop loss is on a closing basis.

Our target potential downside is 14% to 30% in the next 3-6 months.

For a risk of $5.00, our first target reward is $9.00 and the second target reward is $19.00. This is a nearly 1:2 and 1:4 risk-reward trade

In other words, this trade offers nearly 2x to 4x rewards compared to the risks.

Risks to Consider: The stock may reverse its overall trend if it breaks upwards with high volume. The breakout of the stock could be triggered in case of any positive news, overall strength in the market, or any regulatory changes in its sector.

Happy Trading!

— Trades of the Day Research Team

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