It’s a little ironic (strangely I hear Alanis Morissette singing that as I type) that I’m talking about psychological levels with a psychedelic stock.
Shares of Mind Medicine (MNMD) are preparing for one of the biggest moves a stock under $10 can make.
The stock is setting up for a breakout above $10. Sure, the stock has been trading at $10 for the last three weeks, but there’s another big move brewing.
I talk about the psychology of trading a lot. Many of those discussions hit on the psychological “price rules” that investors and traders need to mind.
MindMed is preparing to put one of these rules into play, and it will result in another huge move.
Stocks that break above $10 with a bullish trend tend to see an aggressive rally to $12 and then to $15. That’s a 20% and 50% move in the stock.
The reasons are simple.
- A break above this level somehow brings “validity to a company.” Investors often shy away from buying single-digit priced stocks. There’s a feeling like it’s almost too speculative. Therefore, a stock becomes a more viable investment when it breaks out above this price.
- To that end, many brokers like Fidelity and E*Trade will often warn investors when they are purchasing a stock below $10. Some investment advisors are specifically restricted from buying “cheap stocks” like this.
- Institutions also become more active. Some institutions are restricted from buying stocks that trade under specific price levels. $5 is the more widely used level for institutions, but you’ll also see some staying away from sub-$10 stocks.
Given these and other reasons, I’m always interested in looking at stocks that are emerging from the sub-$10 price with a bullish trend, especially when they have a story like MindMed.
If you haven’t seen the story, check out my article from early March, its worth the read…
Back to the $10 breakout.
This isn’t the first time that the stock has seen this pattern.
October 2020 saw MNMD shares consolidate at $10 for a little over a week ahead of a breakout run that took the stock to $15 in just nine trading days.
From there, the stock consolidated for about two months before breaking above $15 to prices more than 80% higher at $25.
The company was going through its initial “discovery phase” as the therapeutic benefits of psychedelic drugs were in their infancy.
Now, MindMed has multiple therapies in varying FDA trials with the FDA recently granting a “breakthrough therapy designation” to its lead candidate, MM120, a treatment for generalized anxiety disorder.
Here’s how I see this playing out…
Bottom Line
MindMed’s story is still in its infancy.
The company’s pipeline appears to be presenting viable therapies that will bolster the company’s value and share price.
As I’ve already mentioned, I have been a long-term investor in the stock and LEAPS options based on the fundamental story.
My expectations for the company are like those seen for micro- and small-cap biotechnology companies. The trading will be volatile, and many questions will arise along the way, they certainly have since I initially bought the stock at $0.33.
For now, the bullish trend and potential to break above $10 provides a short-term set-up for a significant rally for MindMed.
About the Author
Chris Johnson (“CJ”), a seasoned equity and options analyst with nearly 30 years of experience, is celebrated for his quantitative expertise in quantifying investors’ sentiment to navigate Wall Street with a deeply rooted technical and contrarian trading style.