Yes, You Can Take the Hint From ZIOPHARM Oncology (ZIOP) at Face Value

Four months ago, you could barely give your shares of ZIOPHARM Oncology Inc. (NASDAQ:ZIOP) away. The company announced s on Tuesday, March 26th, that its sarcoma drug Palifosfamide had failed to meet its Phase 3 goals. Shares of ZIOP plunged from $5.13 to $1.82 in a mere day, and were trading as low as $1.51 a week and a half later.

For many traders, that big post-drug-failure selloff would be enough to mentally put ZIOP on the shelf and never consider it again. Veteran traders, however (and biotech traders in particular), will know that most investors often have a tendency to over-react and overdo things. That's almost always a temporary situation though; stocks generally recover from such drubbings. That rebound is often a trade-worthy move too. In fact, ZIOPHARM Oncology is falling right in line with that norm.

The chart of ZIOPHARM Oncology Inc. below illustrates that point quite well. The stock got whacked in March, but has since managed to move higher... a lot. In fact, it's in a full-blown bullish mode at this time. Pushing off the 50-day moving average line (purple) in June - as it should - ZIOP has managed to move above the key 100-day moving average line (gray) this week. It's a key buy signal.

All of that being said, newcomers may not want to necessarily dive into ZIOP right now. As you can also see on the chart, there's a resistance line at $2.98 or so (red). It's not surprising that the chart is stalling there today, especially knowing how rapid the runup has been over the past two weeks. But, the bulls have tipped their hand. The best way to play it may be to wait for ZIOPHARM shares to slide back to the 100-day moving average line and let it act as a support line.... where the bulls can regroup and restart the effort to break past the ceiling at $2.98. In other words, right stock, but not quite the right time.

With all of that being said, one has to wonder, if Palifosfamide failed four months ago, what's driving the stock now? What the market seems to have forgotten is that ZIOP has six other drugs in the pipeline. Granted, none of them are in Phase 3 the way Palifosfamide was, and won't be ready for any final approval anytime soon. But, in the world of biotech, it's milestones that are rewarded - not necessarily reaching the end zone. And, with six more drugs in the hopper, ZIOPHARM Oncology Inc. has plenty of opportunity to tout its milestones. Let's take the chart's clues at face value and put the stock on our watchlists.

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