Psychedelics Company Numinus Wellness Consolidates Recent Surge Higher: What's Going On?

Numinus Wellness, Inc NUMIF was consolidating about 2% lower on Wednesday after surging over 30% on Tuesday.

The massive increase yesterday came after the psychedelics company printed its first quarter 2023 financial results.

Earnings for the quarter showed revenue growth of 618% year-over-year, to $4.2 million (CA$5.7 million), while revenue growth was 35.7% compared to the prior quarter. Numinus’ gross margin also grew by 41.9% year-over-year.

Psychedelics stocks have seen renewed interest from retail traders recently, with sector leader COMPASS Pathways PLC CMPS bouncing about 41% higher from the Jan. 6 low of just under $7. Although Compass Pathways doesn’t have an abnormally high level of short interest, a large percentage of its small 21.69 million share float is locked up by insiders and institutions, which means that shorts could be squeezed because there are not a lot of available shares.

Compass Pathways had 3.87 million shares (or 9.10%) sold short as of Dec. 30, down slightly from the 3.9 million shares held short as of Nov. 30. Compass Pathway's recent rise could be lifting the psychedelics sector as a whole.

In the case of Numinus, Tuesday’s surge higher was also a technical breakout from a bull flag pattern, which the stock had developed between Dec. 29 and Jan. 13.

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The Numinus Chart: Numinus opened Wednesday’s trading session slightly lower in an inside bar pattern before attempting to break above Tuesday’s upper range, where the stock ran into sellers. The selling came in tandem with the S&P 500 rejecting a long-term descending trendline, causing the index to begin to decline.

Numinus’s slightly lower prices likely don’t concern bullish traders because the stock was in need of consolidation and is trading in a strong uptrend. Numinus’ most recent higher low within the uptrend was printed on Jan. 10 at 15 cents, and the most recent higher high was formed at the 20-cent mark on Wednesday.

• Lower prices were the most likely scenario because, on Tuesday, Numinus’ relative strength index (RSI) reached 73%. When a stock’s RSI reaches or exceeds the 70% mark, it becomes overbought, which can be a sell signal for technical traders.
• Bullish traders want to see continued sideways consolidation and then for big bullish volume to come in and break the stock up toward the 200-day simple moving average, where Numinus will likely meet resistance for a period of time.
• Bearish traders want to see big bearish volume come in and push Numinus down toward Tuesday’s low-of-day, which could put the stock in danger of negating its uptrend.
• Numinus has resistance above at 21 cents and 26 cents, and support below at 17 cents and the 11-cent mark.

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