There has been an uptick in momentum, volume, volatility, and opportunity this week among small-cap biotech stocks.

Over the week, multiple small-cap biotech stocks have experienced impressive one and two-day moves.

Shares of PMCB gapped up on Wednesday and traded over 200m shares. The stock made a high of $12.46 before announcing an offering and fading below $4 yesterday.

Perhaps the most talked-about small-cap stock this week is VRPX, which is up 272% on the week. Over the last three days, shares of VRPX have traded well over 200m shares. This figure is impressive, considering the average volume for VRPX is just 5.6m shares per day.

The latest small-cap biotech name to make the headlines and trade abnormal volume was SNOA.

What is SNOA?

Sonoma Pharmaceuticals (NASD: SNOA), per Yahoo, develops and produces stabilized hypochlorous acid (HOCl) products for various applications, including wound care, animal health care, eye care, oral care, and dermatological conditions in the United States and internationally.

Market Cap: 17.1m

Float: 2.07m

Short Float: 6.72%

Average Volume: 107.77k

Year-to-date shares of SNOA are up 12.26% and up 41.25% on the week, thanks to the surge higher yesterday.

What is the catalyst?

The company announced yesterday that it had launched two new dental products.

Sonoma Pharmaceuticals, per Yahoo, “launched OroGenix Oral Hygiene Rinse, which was developed with Gabriel Science and is the company’s second dental product in the U.S. OroGenix Oral Hygiene Rinse uses Sonoma’s patented Microcyn technology to cleanse teeth, gums, and mouth. Sonoma and Medical Systems Solutions also launched Microdacyn Oral Care for both professional and consumer use in Switzerland. The product aims to combat oral and pharyngeal infections and inflammation, and reduce pain and coughing.”

This news sent shares soaring in the pre-market yesterday. The stock traded from $5.45 to over $11 before the market opened.

Reviewing the action

Three days ago I wrote about the Stuff Setup. A setup that forms after a stock breaks above a critical resistance level with an increase in volume immediately fails and fades lower.

Yesterday, this exact setup signaled the turning point and momentum shift in SNOA. Therefore, I want to review the setup and action to understand better how this setup provided multiple clear-cut opportunities in the stock yesterday.

First of all, it is always a good idea to look left! A glance at the daily chart would indicate that the last time the stock traded higher on abnormal volume, it topped out over $15 and closed at the low. Therefore, it is safe to say that this stock has a history of failing after it gaps higher.

After spiking higher off the open, the stock consolidated near the morning high. During this consolidation, $12.80 was the inflection point, as this is where the stock had failed to hold above. After consolidating for fifteen minutes, volume increased, and the stock attempted to break higher. Immediately after breaking over resistance, the stock sprayed higher and then abruptly failed and broke lower, confirming the stuff setup.

After fading lower, the stock made a lower high and came into resistance at $11.60 at 10.15 am. This area of resistance now acted as a new key level as the day would progress.

At 1 pm, the stock attempted to regain this area of resistance on the increase in volume. However, it swiftly failed to hold above and immediately snapped lower. This is another fine example of the stuff set up and a potential opportunity to go short.

What’s next for SNOA?

After failing to close strong and selling off in the after-hours trading session yesterday evening, I am not hopeful that this stock could make new highs.

In the future, $9 and $10 will be short-term resistance, and unless the stock can reclaim these prices, I will not be bullish.


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