Galena Biopharma Preparing For A 3-Day Rally?

Mar.21.12 | About: Galena Biopharma, (GALE)

I like to consider myself a fundamental investor who uses trends to capitalize on value. I try to avoid any technical indicators, because in my experience, these leave too big a margin of error. However, I do believe in using my eyes and my common sense to find a good entry point, and being able to capitalize on trends based on a stock's history. Galena Biopharma (NASDAQ:GALE) is a stock that I have covered very closely over the last few months, and after its most recent news coverage, it's once again trading higher.

GALE is one of the leaders in YTD performance, and has been led higher as investors realize its value. The company has a late-stage drug that treats breast cancer, and has shown incredible results. So far in 2012, as the company continues making strides and reaching new milestones the stock has returned mind boggling gains. Yet what's interesting about GALE is the trend in which it trades, which has led to a significant percentage of its overall gains.

So far, in 2012, GALE has traded with three substantial bullish short-term trends, and is currently trading in its fourth. These trends create new highs, and always close higher than the previous trend. Each has been crucial, with an increase in volume, and has managed to maintain a range following the bullish trade. It's quite remarkable, and truly shows the number of longs investing in this stock, each making substantial money.

January 5 $0.44 221.75 k
01-06 $0.50 166.46 k
01-09 $0.66 1.055 m
01-10 $0.75 1.178 m
01-11 $0.69 524.53 k
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The first row shows the date and the second row has the price of GALE on the matched date. The final row compares the volume for that particular day so you can see any changes in conviction. This was the first trend (of three completed) which reflects three days of substantial gains from the $0.44 starting point. It then shows an increase in volume from $0.50 to $0.75, which is vital to understanding this trend. I think what should be noted about this first trend is that once profit taking occurred there was only 524.53k shares traded, compared to over 1 million traded on the prior two days of gains. This could indicate a large number of investors who went long during this time, possibly seeing the potential beyond the short-term gains.

Feb. 1 $0.64 167.37 k
02-02 $0.78 1.795 m
02-03 $1.04 3.070 m
02-06 $1.26 5.660 m
02-07 $1.01 3.290 m
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The chart above was the second of GALE's big pops, and occurred less than one month after the first. As you can see there is a much more aggressive level of conviction among investors, with higher volume. The stock increased by a similar margin during this trend, and much like the first trend, lasted three days. On the fourth day, profit taking occurred, with roughly 60% of the volume that was seen the day before. Once again, this could indicate more longs in the stock, since it maintains the price before trading higher, after the trend occurs.

Feb. 29 $1.07 622.29 k
03-01 $1.28 2.356 m
03-02 $1.45 4.740 m
03-05 $1.68 4.600 m
03-06 $1.57 1.963 m
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I hope by now you are starting to see a trend: an increase in volume, a three day trend higher, profit taking on the fourth day, and a trend that occurs almost every month. The above chart reflects the stock following the same trend as the first and second time that it occurred, except the profit taking was with less than half of the volume, and the loss was not nearly as relevant. This may be important as we enter future trends; that longs are now outweighing the momentum and day traders.

March 19 $1.55 925.57 k
03-20 $1.95 10.070 m
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The above chart is the trend that we are currently experiencing. The first thing I notice is the massive increase in volume, the second being what's driving the trend: a patent on the Phase III drug, NeuVax. This is amazing news that could make GALE a very enticing acquisition target, and if the company chooses to avoid acquisition, then the company is protected from any generics or similar drugs for quite sometime. This is very exciting for longs such as myself, and with over 10 million shares traded on day one, it is a cause for celebration.

We are currently on day two of the trend, and already the stock has broken all of its old records. As of now, at 1:30 ET the stock has reached a high of $2.93 with over 17 million shares traded. If history is any indication of what's to come, then we can expect more of the same tomorrow (on day three) with similar volume as today.

I will conclude by saying that if you are a short-term trader, then you most likely have another day of gains on Thursday (if the trend continues). But if you are long, then this is all very exciting. Hopefully, you didn't fall into the previous profit taking periods and you have held your shares to enjoy a YTD gain of more than 450%. Unlike other stocks that follow a similar trend, GALE is growing stronger with every completion of the trend. It's popping bigger, falling less, and trading with higher volume. In addition, it's occurring more frequently, which is enough for me to hold my shares and ignore the one day of profit taking so I can enjoy larger gains over the next few months.

Disclosure: I am long GALE.