Graybug Vision Shorts Got A Serious Squeeze: What's Next?

Graybug Vision Inc GRAY has not released any news since it printed its first-quarter 2021 earnings results May 12, but that didn’t stop the stock from closing up 22% on Thursday and soaring further Friday morning. 

The beaten-down stock went public on Sept. 25, 2020 at $19 and climbed almost 100% higher over the following two months to reach a Nov. 23 all-time high of $37.88.

The clinical-stage biopharmaceutical company’s stock then double-bottomed on May 14 and May 24 at $3.46 after a monthslong 90% cliff dive.

There may be a short squeeze in the cards for Graybug Vision: it has all the classic characteristics of other recent short squeeze targets such as Senseonics Holdings Inc. SENS and World Wrestling Entertainment, Inc. WWE. 

• Small float: Graybug Vision has only 7.8 million shares available.
• High levels of ownership: Institutions and insiders own 81.15% of Graybug Vision’s float, with insiders owning 10.47% and institutions owning 70.68%.
• High short interest: As of May 28, 1.24 million, or 10.74% of the stock’s float, is held short.

See Also: 28 Stocks Moving in Friday’s Pre-Market Session 

The Graybug Vision Chart: On Thursday, massive bullish volume entered Graybug Vision’s stock and drove it up over a resistance level near the $5 mark. The move helped the stock put in a higher high on the daily chart, confirming the downtrend is over.

On Friday, Graybug Vision gapped up about 18% before hitting resistance at $6.97 and prompting a group of sellers to came in and drop the stock down to fill the gap.

It’s not a bad thing for the bulls that Graybug Vision has filled the lower gap. Gaps fill 90% of the time, and leaving a gap below can make traders nervous. Graybug does have an overhead gap starting at $11.12 all the way up to $14.52, which is also good for bullish traders, as it's likely the stock will trade back up in that range in the future.

Thursday’s move also helped Graybug vision to close above the eight-day and 21-day exponential moving averages (EMAs) and for the eight-day EMA to firmly position itself over the 21-day EMA, which gives bulls more confidence.

Since Graybug has not yet traded for 200 days, the 200-day simple moving average (SMA) isn’t available as an indicator but traders can use the 50-day SMA as well.

On Friday morning, Graybug Vision was trading about 20% above the 50-day SMA which indicates sentiment in the stock is bullish.

Bulls want to see consolidation on low volume and for Graybug Vision’s stock to hold above support at $5.04.

After a period of consolidation, the stock could make another run up toward the $7 mark and, if it can push over that level, it would become support. Graybug Vision could then make a move up toward $8.65.

Bears want to see big bearish volume enter the stock to drop it back down under $5. If the stock was unable to hold the level it could fall down to $3.51, which would also cause Graybug Vision to lose support of the eight-day and 21-day EMAs.

GRAY Price Action: Shares of Graybug VIsion were trading down 1.26% at $5.46 at last check.