This High Risk / High Reward Stock is in a Possible Bullish Setup

We recently started a series called “Penny Stock of the Day”. These ideas are geared towards traders with an extremely high risk appetite.

Our Penny Stock of the Day is chosen by screening for stocks under $5 and then applying technical analysis on the shortlisted set of penny stocks showing unusual volume. When making these trades, please make sure to pay vigilant attention to pricing moves and have a strict stop loss in place to avoid significant losses.

Penny Stock of the Day: Bluebird Bio Inc. (NASDAQ: BLUE)

Today’s penny stock pick is the biotechnology company, Bluebird Bio Inc. (NASDAQ: BLUE).

Bluebird Bio Inc. researches, develops, and commercializes transformative gene therapies for severe genetic diseases. Its product candidates for severe genetic diseases include betibeglogene autotemcel for the treatment of transfusion-dependent ß-thalassemia; lovotibeglogene autotemcel for the treatment of sickle cell disease (SCD); and elivaldogene autotemcel to treat cerebral adrenoleukodystrophy.

The company’s clinical study program includes HGB-205, HGB-206, and HGB-210 to evaluate the safety and efficacy of lovo-cel in the treatment of patients with SCD; and HGB-204, HGB-205, HGB-207, and HGB-212 to evaluate the safety and efficacy of beti-cel in the treatment of patients with ß-thalassemia. It has strategic collaboration and license agreements with Orchard Therapeutics Limited, Forty Seven, Inc., and Magenta Therapeutics, Inc.

Website:  www.bluebirdbio.com

Latest 10-k report:  https://sec.report/Document/0001293971-22-000016

Analyst Consensus: As per TipRanks Analytics, based on 7 Wall Street analysts offering 12-month price targets for BLUE in the last 3 months, the stock has an average price target of $2.67, which is nearly 28.42% downside from current levels.

Source: TipRanks.com

Analysts | Source: TipRanks.com

Potential Catalysts / Reasons for the Hype:

  • A U.S. Food and Drug Administration committee endorsed elivaldogene autotemcel gene therapy to treat certain patients with early active cerebral adrenoleukodystrophy.
  • FDA posted a favorable review on a β-thalassemia candidate developed by Bluebird bio.

On analyzing the company’s stock charts, there seem to be multiple bullish indications…

Bullish Indications

#1 Falling Wedge Pattern Breakout: The daily chart shows that the stock has been forming a falling wedge pattern for the past several months. These are marked as purple color lines. It has typically taken support at the bottom of the wedge before bouncing back. The stock has currently broken out from the falling wedge pattern. Once the stock breaks out of the falling wedge pattern, it could move higher.

BLUE – Daily Chart

#2 Bullish ADX and DI: The ADX indicator shows bullishness as the +DI line is above the -DI line, and the ADX line is currently moving higher from below the +DI and -DI lines.

#3 Bullish RSI: The RSI is above 50 and moving higher, indicating possible bullishness.

#4 MACD above Signal Line: In the daily chart, the MACD (light blue color) is currently above the MACD signal line (orange color). This indicates a possible bullish setup.

#5 Downtrend Broken: The weekly chart shows that the stock has broken out of the prevailing downtrend, which is marked as an orange color line. This is a possible bullish indication.

BLUE – Weekly Chart

#7 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart as well, indicating possible bullishness.

#8 MACD above Signal Line: In the weekly chart, the MACD (light blue color) is currently above the MACD signal line (orange color). This indicates a possible bullish setup.

Recommended Trade (based on the charts)

Buy Levels: If you want to get in on this trade, the ideal buy level for BLUE is above the price of $3.95.

Target Prices: Our first target is $6.00. If it closes above that level, the second target price is $8.00.

Stop Loss: To limit risk, place a stop loss at $2.70. Note that the stop loss is on a closing basis.

Our target potential upside is 52% to 103%.

For a risk of $1.25, our first target reward is $2.05, and the second target reward is $4.05. 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.

Potential Risks / Red Flags:

  1. The company has incurred net losses in each year since its inception in 1992, including net losses from continuing operations of $562.6 million for the year ended December 31, 2021. As of December 31, 2021, BLUE had an accumulated deficit of $3.72 billion.

    BLUE – Consolidated Statements of Operations and Comprehensive Loss

  2. The company was formerly known as Genetix Pharmaceuticals, Inc., and changed its name to bluebird bio, Inc. in September 2010.
  3. Corporate Insiders Sold Shares Worth $11.5K in the Last 3 Months.

    Insiders | Source: TipRanks.com

  4. Hedge Funds Decreased Holdings by 58.4K Shares Last Quarter.

    Hedge Funds | Source: TipRanks.com

  5. Despite being a loss-making company, the executives are being paid significant compensation.

    BLUE – Executive Compensation

  6. The company has ongoing legal proceedings.
    1. On February 12, 2021, a class action complaint was filed in the United States District Court for the Eastern District of New York, Leung v. bluebird bio, Inc., et. al., Case No. 1:21-cv-00777, by a purported stockholder against BLUE and certain of its officers. The complaint alleges violations of Section 10(b) of the Securities Exchange Act and Rule 10b-5 promulgated thereunder against all defendants and violations of Section 20(a) of the Exchange Act against the officers and seeks unspecified damages. The allegations relate to the company’s disclosure on November 4, 2020, that BLUE was adjusting the expected timing of submission of a BLA to the FDA for LentiGlobin for sickle cell disease to late 2022.
    2. On October 21, 2021, Errant Gene Therapeutics, LLC filed a complaint against BLUE in the United States District Court for the District of Delaware for alleged infringement of U.S. Patents 7,541,179 and 8,058,061. The allegations relate to the company’s use of the BB305 lentiviral vector in the beti-cel program and seek injunctive relief and money damages.

As you can see, today’s featured penny stock offers big upside potential… but it also comes with a number of risks and red flags. As always, when dealing with penny stocks, we advise caution before entering into such high-risk ventures. Remember to think before you trade… understand the risks… and if you decide to trade, stick to your stop-losses!

Happy Trading!

Trades of the Day Research Team

READ BEFORE TRADING PENNY STOCKS: The allure of penny stocks lies in their potential to deliver massive gains in a short period of time. However, in exchange for that opportunity, most penny stocks carry tremendous risk. They can be extremely volatile and are susceptible to “pump and dump” schemes and fraud.

Unlike regular stocks, the financial condition of most penny stock companies can be extremely difficult to analyze, as the majority of such stocks are traded on over-the-counter (OTC) exchanges, which are typically less transparent and less regulated than the major exchanges. In fact, in the penny stock space, it’s often easier to spot warning signs and red flags than it is to identify a sound investment. Nevertheless, we do our best to identify short-term trade opportunities in this exciting space because we know some of our readers are looking for high-risk, high-reward ideas. We just urge you to make sure you fully understand the risks before making any of these trades.

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