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Christian Tharp, CMT

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5-Star Biotech Stock Watch: Synta Pharmaceuticals

It seems as if mergers and acquisitions in the healthcare sector has become commonplace, with a lot of biotech companies being main targets.

Not a week goes by without multiple discussions about the battle between Valeant Pharmaceuticals (NYSE: VRX) and Allergan(NYSE: AGN). Last week brought news of  Merck’s (NYSE: MRK) acquisition of Idenix Pharmaceuticals.

Investors in companies that are acquired tend to reap huge paydays, but unfortunately it is difficult to know which companies might be next.

However, Synta Pharmaceuticals (NASDAQ: SNTA) was recently cited in Forbes as having the potential of being acquired. The company focuses on the discovery, development and commercialization of small molecule drugs for treating severe medical conditions, including cancer and chronic inflammatory diseases.

Related Link: Is Vivus About To Get Squeezed?

Synta has two drug candidates in clinical trials for treating multiple types of cancer, and various drug candidates in the pre-clinical stage of development.

Take a look at the six-month chart for Synta with added notations:

After its steep decline back in late March and February, Synta has essentially traded within a very tight range.

During this consolidation, the stock has found support repeatedly at $3.95, while hitting resistance around $4.40.

Long traders could look to enter the stock on a move above $4.40, or on a pullback down to $3.95.

And who knows, maybe traders will get a pleasant surprise for making a good trade.

Related Link: Five Star Biotech Stock Watch: Illumina

Synta isn't set to release earnings again until the beginning of August.

But no matter what your strategy, or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade. Capital preservation is always key.

Posted in: Long Ideas News Short Ideas Health Care Technicals M&A Trading Ideas General