EDAP TMS S.A. May Have Just Run Out of Gas (EDAP)

This isn't going to be a well-received idea, given how bullish the stock appears to be at this time, but EDAP TMS S.A. (NASDAQ:EDAP) is a sell. Up 82% since the end of May, EDAP is ripe for a pullback, and may have reached the bearish pivot point as of today.

If you're reading this, then you're likely already familiar with the company. If it's a new name to you, however, the story is simple. EDAP TMS S.A. is the designer and manufacturer of minimally invasive surgical devices. Its claim to fame is the Ablatherm(R), for high-intensity focused ultrasound (HIFU) treatment of localized prostate cancer. The device is already sold in Europe, and is approaching a decision date with the FDA, which will make a key choice for the HIFU device on July 30th. As is so often the case, however, EDAP rallied sharply in front of the impending news, as nobody wants to miss out on any potential decision-driven jump.

That psychological jockeying, however, can wreak havoc with the normal interpretation of a chart, and forces current and would-be traders to not focus on the value of a positive decision from the FDA, and instead forces onlookers to decide when the rally is going run out of gas...and to do that, traders have to get a very good grip on the clues the chart's giving. Well, EDAP TMS S.A. has dropped a major hint today, and in the shadow of the huge rally that's unfurled since early June, we may well be at the turning point, for the worst.

The red flag here is the shape of today's bar. It's considered a doji, where the open and the close (so far) are very near one another. It's a sign that the equilibrium between the buyers and the sellers has been met en route from a net-buying environment to a net-selling environment. If today is the equilibrium day for EDAP, then from this point forward is the net-selling environment. Given how overbought the stock is, there's certainly no denying there's a lot of pent-up profit-taking potential.

Just for the record, this isn't a long-term judgment call on EDAP TMS S.A. or on Ablatherm. It's a short-term coal based on one of the occasionally-quirky realities of trading. When it comes to biotech, stocks tend to rise and fall well in advance of news and events, and a proactive, predictive approach tends to work best.

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