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Expert Financial Analysis and Reporting

Thoughts on the Price Surge of Cytokinetics (CYTK, $8.75)

Cytokinetics has been on a tear this year. Is started the year at $6.72 and closed yesterday (January 10) at $9.58, this is a 43% increase in just over a week. So what is going on? I checked in with management and they could point to no recent announcement or event that would cause such a move. Technical analysts and momentum followers are jumping on the stock and exacerbating the move. Also, there is a meaningful short position and there could be a pretty significant short squeeze.

I can’t point to one thing that caused this impressive and welcome price movement. As you may know, I initiated coverage of this stock on March 25, 2013 with a buy at $6.30.

The stock traded in a range of $11 to $14 in the summer. Then with the announcement of the ATOMIC-AHF results on August 30, the stock plunged from $10.47 to close the next day at $7.65 and subsequently drifted lower to trade in the $6.00 to $7.00 range for the balance of the year. The headline news on the ATOMIC- AHF trial was taken negatively. See my report of September 4, 2013. After listening to key opinion leaders, I concluded that the results were on balance quite positive. See my September 24 report.

From my perspective, the stock should never have traded down to the $6.00 to $7.00 range. This current price remains attractive from my standpoint.

I am seeing across the board strength in emerging biotechnology names. The big biotechs have been in a raging bull market for the last year. The emerging biotechs are joining the party. This is a pattern that I have seen before. The small stocks may tread water for months or years at a time and then there is a burst in which we see extraordinary price movements in which stocks have huge price movements in just a few days or weeks even in the absence of significant news.

We seem to be entering this exuberant stage. How long will it last? I don’t know nor does anyone else. I would just caution readers not to confuse brains with a bull market. A rising tide lifts all boats but as Warren Buffett says “When the tide goes out we can see who is swimming naked.” CYTK has a bathing suit on.

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