As the week kicks off, market action is subdued, with Nvidia (NVDA) standing out as a rare bright spot amidst a sea of red. Despite the general downward pressure, the market doesn’t seem to be driven by panic, but rather a lack of enthusiasm. Market breadth reveals about 3,900 gainers versus 5,000 decliners, indicating a broad-based sell-off, and more stocks are hitting 12-month lows than highs. The small-cap Russell 2000 (IWM) is trailing, down 0.4%, highlighting the current risk aversion.
Key Insights: September CPI Report and Market Positioning
Large-cap stocks are taking the lead, as shown by the Nasdaq 100 (QQQ), which is up approximately 0.6%. However, the broader market sentiment remains weak, with three decliners for every two gainers. This leadership by big caps typically reflects a flight to safety, as investors gravitate towards established names in uncertain times. In contrast, small caps tend to outperform when market sentiment is more speculative and risk-on.
Strategic Perspective: Limited Opportunities and Caution
Currently, the market offers few compelling setups, and it’s wise to exercise caution. Among the limited plays, Humacyte (HUMA) is experiencing volatility, down about 15% after the FDA postponed its decision on the company’s artificial vein product. While the FDA has apologized for the delay, no further details have been provided, leaving investors in the dark about the timing of the decision. Despite this uncertainty, Humacyte’s management remains confident in receiving approval, and upcoming earnings could provide more clarity. For those with a long-term view, the stock may present an opportunity amidst the current volatility.
Meanwhile, most of my preferred stocks are treading water in this mediocre market environment. There’s no urgency to buy, but one larger-cap biotech name on my radar is Viking Therapeutics (VKTX). Viking is progressing rapidly in the highly competitive obesity drug market, going head-to-head with giants like Eli Lilly (LLY) and Novo Nordisk (NVO). Early data from Viking’s VK2735 drug shows promising results, with significant weight loss and fewer side effects compared to other GLP-1 drugs.
Competition and Opportunity: The Obesity Drug Race
The obesity treatment market is vast and fiercely competitive, with stocks reacting sharply to news of new entrants. For instance, Amgen (AMGN) recently noted on its earnings call that it was advancing its GLP-1 drug to Phase III trials, though concerns about side effects linger. Viking Therapeutics, however, continues to stand out with strong data and minimal side effects.
Raymond James recently raised its price target for Viking to $118 from $116, maintaining a strong-buy rating. The firm highlighted the positive progress of VK2735, which is now moving directly to Phase III trials—a process that could be completed in just two and a half years. Viking’s Phase I oral VK2735 trial has progressed through the 60 mg and 80 mg cohorts without any significant safety issues, and the 100 mg cohort is currently enrolling. The company is scheduled to present more detailed data at ObesityWeek in November 2024, which could be a catalyst for the stock.
Moreover, VK2735’s potential applications extend beyond obesity, with additional indications expected to be updated soon. There’s also speculation that Viking could be a takeover target for a larger pharmaceutical company looking to enter the obesity space, adding another layer of potential upside.
Technical Outlook: VKTX’s Current Trading Range
From a technical perspective, VKTX has recently found support in the $40 range, staying above its 200-day simple moving average (SMA). However, the stock is encountering resistance at the downtrend line, and a minor pullback might be necessary to consolidate recent gains. Traders should watch for range-bound action between the 50-day and 200-day SMAs, which could offer a good entry point for those looking to capitalize on the stock’s longer-term potential.
Key Takeaways for Traders and Investors:
- Market Sentiment: Current market conditions are lackluster, with a tilt towards risk aversion. Large-cap stocks are outperforming, while small caps lag, reflecting a cautious market sentiment.
- Stock Spotlight: Humacyte (HUMA) is volatile due to FDA delays, but long-term prospects remain positive. Viking Therapeutics (VKTX) shows strong potential in the obesity drug market, with promising data and speculation of being a takeover target.
- Technical Levels: VKTX is trading within a range, with potential entry points around its 50-day and 200-day SMAs.