This Stock Just Broke Out with Historic High Volume

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: ESSA Pharma Inc. (NASDAQ: EPIX)

Today’s penny stock pick is the clinical stage pharmaceutical company, ESSA Pharma Inc. (NASDAQ: EPIX).

ESSA Pharma Inc. focuses on developing novel and proprietary therapies for the treatment of prostate cancer. It develops EPI-7386, an oral candidate that is in a Phase I clinical study for the treatment of patients with metastatic castration-resistant prostate cancer. The company has collaboration agreements with Caris Life Sciences, Inc.; Bayer Consumer Care AG; Janssen Research & Development, LLC; and Astellas Pharma Inc.

Website:  https://www.essapharma.com

Latest 10-k report:  https://sec.report/Document/0001558370-21-016181

Analyst Consensus: Not covered by analysts as per TipRanks.

Potential Catalysts / Reasons for the Hype:

  • The company reported clinical trial data from its tests of EPI-7386 that covers the treatment of metastatic castration-resistant prostate cancer. The data from its tests produced positive results.

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 with historic high volume. Once a stock breaks out of the falling wedge pattern, it could move higher.

EPIX – 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 Price above MA: The stock is currently above its 50-day SMA, indicating that the bulls have currently gained control.

#4 Bullish Stoch:  The %K line of the stochastic is above the %D line, and has also moved higher from oversold levels, indicating possible bullishness.

#5 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.

#6 Above Support Area: The weekly chart shows that the stock is currently trading above a support area, which is marked as a pink color dotted line. This is a possible bullish indication.

EPIX – 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 EPIX is above the price of $4.90.

Target Prices: Our first target is $7.00. If it closes above that level, the second target price is $9.00.

Stop Loss: To limit risk, place a stop loss at $3.60. Note that the stop loss is on a closing basis.

Our target potential upside is 43% to 84%.

For a risk of $1.30, our first target reward is $2.10, and the second target reward is $4.10. 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 is not profitable and has incurred losses in every reporting period since its inception in 2009. For the years ended September 30, 2021, and September 30, 2020, ESSA reported net losses of $36,805,461 and $23,445,370, respectively. As of September 30, 2021, ESSA had an accumulated deficit since inception of $117,775,765.

    EPIX – Consolidated Statements of Operations and Comprehensive Loss

  2. As per the press release, “EPI-7386 in combination with enzalutamide was safe and well-tolerated at the doses tested with clinically relevant drug exposures and deep and durable prostate specific antigen reductions observed in five of six patients.” The drug is still in the early phases of testing and there has been no discussion regarding the efficacy. The patient group size (6 people) is also small. The company notes that it is “currently enrolling a third dose escalation cohort as we optimize the therapeutic dose of EPI-7386 in the combination study in preparation for Phase 2.”
  3. The Company does not have any products that have obtained regulatory approval for commercialization. ESSA’s future success is dependent primarily on the regulatory approval for commercialization of EPI-7386. The company also does not own or operate facilities for the manufacture of future potential product candidates or has plans to build internal clinical or commercial scale manufacturing capabilities.
  4. ESSA had entered into a License Agreement with UBC and the BC Cancer Agency that covers certain Aniten compound candidates. The Company is subject to a number of risks associated with the collaboration with UBC and the BC Cancer Agency.
  5. Effective September 30, 2021, ESSA no longer qualifies as an “an emerging growth company” and the reduced disclosure requirements applicable to emerging growth companies no longer apply, which will increase the Company’s costs and demands on management.
  6. Despite being a loss-making company, the executives are being paid significant compensation.

    EPIX – Executive Compensation

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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