June should be fun. Materials News + Bullish Chart = $$$
Don't look now, but 22nd Century Group Inc. (NYSEMKT:XXII) isn't dead after all. It would have been easy to come to that conclusion a month ago, in the shadow of a 66% tumble for XXII shares. In retrospect though, it's relatively easy to see that at least a good portion of the pullback stemmed from the fact that 22nd Century Group was the beneficiate of am exaggerated runup between December and early March.
For those not familiar with it, 22nd Century Group Inc. is a cigarette company... essentially. XXII is better known (so far) for its work in smoking cessation. The company's technology allows tobacco plants to be grown with less nicotine than would normally be present in the plant. The company is also the developer of X-22, which is - or will be - a prescription-based smoking cessation drug. The company drove very little revenue up until the fourth quarter of last year. That's when a licensing deal worth about $7 million in revenue first paid off. Presumably, that licensing revenue is renewable every year.
It's that revenue that likely sparked the rally from a price of $1.15 per share in October of last year to a peak of $6.36 by mid-March of this year for XXII, though moving from an OTC exchange to an NYSE exchange certainly didn't hurt matters either. As is so often the case though, the market didn't realize 22nd Century Group shares were racing out of control - a 450% gain in about five months - until it was too late. The pullback was just as dramatic, and almost as painful. The stock lost 2/3 of its value between mid-March and mid-April.
Great, but what does any of that have to do with 22nd Century Group Inc. now? In simplest terms, the truth (aka the "right price") is somewhere in the middle. The return to that middle represents a bit of a trading opportunity.
Perhaps even more important, XXII has made good on a reversal effort that's been in the making for a while. The bleeding stopped in early May, with the beginning of higher lows and higher highs. That effort was underscored today when 22nd Century Group shares popped back above a coupe of key moving average lines.
The jump was superficially sparked by news that the company was going to build a nicotine-free cigarette production facility in Europe, but truth be told, the move's been developing for weeks now. That's why it could also last for weeks now that it's underway. Though traders can still expect choppiness from XXII (if for no other reason than to fill in today's opening gap), the hard part's been done - the stock is back in bullish mode. A return to a price between $4.00 and $4.50 is likely... maybe more.
