Correction Rally - No SurprisesThis has been an exciting week for investors in Oncolytics and readers of this Discussion Board. I see no reason to be surprised by the strength of this week’s correction rally. The correction rally has been gathering momentum since the beginning of the summer. On Tuesday and Wednesday, the rally broke through its 52 week highs. These events cause general market excitement. Yesterday, the market was hesitant to support the rally above $5.00. Have we come too far too quickly? No, I expect that the market will be supporting Oncolytics above $5.00 by the close of the market today.
Every reader of the Board knows that the market has under valued Oncolytics. Its current market valuation of around $300 million based on yesterday’s close remains a joke. The last hurdle before Reolysin becomes a commercial success story and a new tool in the fight against cancer is to pass its heck and neck pivotal trial. This is a low hurdle for Reolysin given the years of past trial results. The market is moving to protect its investment in Oncolytics. The market is moving to give Brad and Oncolytics the power to negotiate deals with Big Pharma. Negotiating these deals with a depressed market capitalization is not in the market’s interest.
I call this rally a correction rally because the pace of the correction is slow. We are on a march to the minimum market cap valuation of $500 million. This valuation requires a stock price above $7.00. The market’s interest is in a march, not entering a race to get there. As the volumes this week indicate, there are many investors out there who do not read this Board. They see an opportunity to pocket a short term gain. There is no reason why far sighted investors do not mop up these shares. If the pace of the correction rally was to post weekly gains on a Friday over Friday in the order of 25 cents, I would not be surprised. I will be in there increasing my holdings.
At some point, the correction rally will quickly change into a market expectation rally. Everyone in the market will see the potential commercial value of Reolysin and the market will chase a limited supply of stock. The cause of the change can from a number of sources. The progress of the correction rally and consistent gains over its previous 52 weeks high will alert the market; even a hibernating bear wakes up. The more likely cause will be a major announcement from Oncolytics regarding trial results or partnership deals. I am not expecting anything until next year, but I’m speculating.
When the market speculation rally happens, the stock price will spike above $10. Below $10, the buyer has bought without accepting any significant market risk. At $20, Oncolytics can still be a strong recommend opportunity. Ten dollars has been cut out of the potential upside but the downside risk remains minimal.