Last week, yours truly posed the unpopular (though largely ignored) premise that EDAP TMS S.A. (NASDAQ:EDAP) was poised to tumble. It wasn't anything personal, nor was it a judgment call on the merits of the company. It was simply a trading-based call, observing how the rally EDAP was enjoying at the time appeared to be running out of gas, and there was no floor to halt any pullback.
Care to guess what happened in the meantime? Yes, EDAP TMS S.A. began to deteriorate, but as of today may have passed the point of no return.
The nearby chart tells the tale. The bulls basically continued to fight a decent fight for a couple more days... a feat made even more impressive by the fact that the market environment was decidedly bearish on Monday and Tuesday of this week. The weight of the gain achieved in late June, however, today has proven to be too great to hold up. Despite the market's modest bullishness on Wednesday, the sellers are knocking on the door of another lower low, and though we saw intraday rebound efforts on Monday and Tuesday, we're not seeing such interest today. The bullish effort appears to be completely out of gas.
Given the backstory behind the big runup, it's not a tough premise to digest. When EDAP shares started to heat up in late May, it was on the heels of news that the company was close to winning the FDA's approval of its Ablatherm-HIFU system for use in the United States. As is so often the case with biopharma and biotechnologies, however, the "buy the rumor, sell the news" axiom holds true - everybody who was looking to speculate on an approval has already rushed in, fearing missing out on the bullish knee-jerk response to the official news of an approval. The irony is, there may be few buyers left to bid the stock up on the news. Most everyone who wanted in has already got in, and it may even be the case that they're not even waiting for the news to come out before starting the profit taking. Welcome to the world of biotech stocks, which are more of a psychological chess match than the successful prediction of binary events.
Whatever the reason, take the chart at face value - they never lie, and their hints are rarely wrong. Today's pullback from that EDAP TMS S.A. is a major red flag, and there's a ton of room for shares to give back before finding a floor.
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