If you’ve been following me, you’d know that I’ve been watching and trading CASSAVA SCIENCES INC (SAVA) for a few months now. Some short sellers have been all over this stock, questioning their results.
In fact, a new short report was issued by Quintessential Capital Management on Wednesday. However, in a blow to some of the short-sellers’ claims, on Thursday, SAVA announced that a “Review by Journal of Neuroscience Shows No Evidence of Data Manipulation in Technical Paper Foundational to Cassava Sciences’ Lead Drug Candidate”.
This led to a 70% up move in the stock as momentum traders stepped in and Short sellers scrambled. Here is how I traded it:
Here was my live play by play call as I traded this setup:
Nov 4, 10:31 AM
Jeff Bishop: taking some SAVA here around $80, nice retracement from $100
Nov 4, 11:02 AM
Jeff Bishop: I think SAVA is a non-stop buy for me today, Ryan. I could be totally wrong, but there are so many shorts in this stock and there is very little reason to stay short right now. I think there will be a constant bid under the stock and I want to buy the dips
Nov 4, 12:20 PM
Jeff Bishop: Same on SAVA. Buying more around $81 as it is turning above the 1-min lines and $80 support is holding
Nov 4, 12:31 PM
Jeff Bishop: my stop is right around $78 on SAVA, if that hits then I will revisit it when (if) it starts to turn higher later today
Nov 4, 1:15 PM
Jeff Bishop: adding back some SAVA here. Scaling in, and stop is now new LOD, again
Nov 4, 1:49 PM
Jeff Bishop: I’m going to peel a piece of SAVA in $ 55’s if we get there.
Nov 4, 1:59 PM
Jeff Bishop: ha, I hope not $55! $85 sounds better
Nov 4, 2:28 PM
Jeff Bishop: got first piece of SAVA off in $ 55’s!
Nov 5, 9:39 AM
Jeff Bishop: I’m selling more SAVA from yesterday here around $88-90. Trying to get $94 on next piece and hold some for a spike over $100 if it wants to get crazy. My stop now is under $82
Here was the reasoning for the trade:
Fundamentals
Cassava Sciences, Inc is a clinical-stage biotechnology company that develops drugs for neurodegenerative diseases. Its lead therapeutic product candidate is Simufilam, a small molecule drug; and they have an investigational diagnostic product candidate- SavaDx, a blood-based biomarker/diagnostic to detect Alzheimer’s disease.
This stock was 10 bagger this year, running from under $10 to over $140 this year due to results from its Alzheimer’s drug.
However, many short sellers and so-called experts in the biotech world claimed that the results were manipulated and the company’s outcomes could not be concluded from the data. This led to a steady selloff to around $40.
After some buying Interest on Tuesday, a new short report by Quintessential Capital Management caused some volatility in the Stock on Wednesday, questioning the legitimacy of the company and its results. One of the main short-seller claims was of data manipulation of a previous study. This short report may have drawn in new short-sellers, and the short float was already over 10% as per Finviz.com. A trading halt and some company news the next day set off a buying frenzy.
On Thursday, SAVA announced that a “Review by Journal of Neuroscience Shows No Evidence of Data Manipulation in Technical Paper Foundational to Cassava Sciences’ Lead Drug Candidate”. This led to a 70% up move in the stock as momentum traders stepped in and Short sellers scrambled.
Technicals
After the news and the re-open, Sava gapped up from $56.66 to $69 and then traded to $100 in less than 15 minutes.
I wasn’t fast enough to catch any of the initial move, but was waiting on a nice pullback for a long trade, as I felt short were stuck and in big trouble. I saw some buyers and support at the $78-80 area and felt there was a good risk/reward trade at these levels, so I initiated a long position. I Added as the stock consolidated above $80. Unfortunately, I got stopped out at $78 as the stock dropped.
However, and this is an important lesson for newer traders: I did not give up on my trade idea!
When a new recent low was made at $76, I got right back into SAVA at around $78. I still felt that if SAVA could make a higher low, there was a good chance we could get back to $90 and even re-test $100.
That proved to be the low of the day and I was able to scale out of my position at $85 in the afternoon and sold some more the next day between $88 and $90. This trade was a great example of buying a pullback in a strong stock with high short interest.
Bottom Line
Stocks with high short interest can have big moves to the upside when unexpected news hits and shorts are trapped….. This is what happened with CASSAVA SCIENCES INC (SAVA) on Thursday.
On Wednesday, a short report was followed by unexpected positive news on Thursday, leading to an explosive move higher.
While I did not participate in the initial reaction, I waited for a decent pullback before getting into the stock for a move higher. Although I got stopped out on my first attempt, I was able to re-enter the trade again before seeing a significant move higher. I was able to exit most of my position at my first 2 targets and trail the rest with a stop above my initial entry.
