Are you frustrated with the market acting like a rollercoaster? If yes, then you are not alone. Many smart investors, have had enough with the media suffocating the public on the coronavirus. Many investors are now basing their entire financial decision on what the media reports.
Consequently, the coronavirus fear is beating down fundamentally strong stocks left, right and centre. We have seen this with the ‘Big Four Banks’, Tesla (NASDAQ: TLSA), a2 Milk (ASX: A2M) and many more. However, the fear is driving down our healthy stocks close to their GFC price. Thus, providing opportunists with a window to snap up quality stocks at a discount or make money off the day trade.
Today we are discussing why two fundamentally strong biotechs, Clinuvel (ASX: CUV) and Paradigm Biopharmaceuticals (ASX: PAR) surged on Tuesday, whether it can happen again, and the reality behind day trading these stocks.
Why did these biotechs explode on Tuesday?
Whether you are an investor or not, you would have heard about the bloodbath on Monday. Stocks crashed to multi-year record lows, triggering the worst day for shares since the GFC. The 9th of March is now going down in history as the “The Black Monday of 2020”.
However, on Tuesday an enormous number of investors rallied behind the market, buying up every share they could get their hands on.
The buying frenzy caused PAR to surge by 24%. Paradigm, through its repurposed drug Zilosul, focuses on decreasing the pain and cartilage degradation for Osteoarthritis patients. Now on the back of no news, we must ask ourselves why did PAR jump?
PAR without a doubt is a fundamentally strong biotech. Their H1 2020 financials,substantial cash flow for clinical trials, and life-changing drug illustrate PAR’s high quality. Thus, it is no surprise that when PAR dropped to $2.11 on Monday morning, wiping out 7 months on growth, smart investors snapped up the stock a fraction of its true value. It would be like looking a gift horse in the mouth.
The crazy amount of buying on Tuesday also drove up Clinuvel by 8.32%. Clinuvel, through its drug SCENESSE, strives to deliver treatments for people suffering severe skin disorders. Again, there was no news surrounding the biotech giant, so why did CUV surge?
Clinuvel is becoming not one of Australia’s highest-priced biotechs but also one of the worlds most reputable skin disorder companies. CUV’s H1 2020 financials, campaigns across Australia, Asia and now North America, and its recent meeting with the FDA on vitiligo trials represents the healthiness of the company.
So, it is kind of a no brainer that when CUV dropped to $15.38 on Monday, which was the price back in September 2018, that investors flocked to the Aussie biotech. Personally, I think Tuesday’s price was a steal. Because, CUV was at $45 not so long ago and investors have been waiting for the perfect entry point ever since. To add the cherry on top, CUV offers a dividend.
Can PAR and CUV surge again?
Before I start, I am obliged to remind our viewers that this is not advice only general commentary from my extensive research in this area.
Now, many investors might be kicking themselves for not investing during Tuesday’s enormous rally. However, could the same opportunity be presented in the coming weeks?
If the media continues to infect the markets with the coronavirus fear, then another devastating day like Monday is possible. Thus, resulting in the day after to experience explosive growth.
At least now investors understand what price (resistance level) these biotechs need to fall to before the buyers arrive in massive numbers. Based on Monday PAR’s resistance level is between the 2.11-2.16 range. With CUV being between 15.28-15.30. However, you should not base your investment decision off these levels as your own research is required.
Two potential opportunities
During these turbulent times, investors have two smart choices.
- Snap up high-quality stock at a fraction of the cost and hold for the long term.
- On the other hand, you can day trade, especially with the polarising market activity seen on Monday and Tuesday.
If you decide to day trade. Be careful. The volatility could result in you in investing in the wrong time, losing your money and thus getting “the short end of the stick”. Because 15 minutes could be all the difference between the right and wrong time.
I am not for or against day trading during the coronavirus. Just simply acknowledging the risks.
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The information above should not be taken as financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
Written by Patrick McLoughlin, Associate of YIG