Genetic Technology Technical Analysis

Genetic Technologies Limited (GENE) just jumped nearly 23% in share price within a day. The third up-gap this month, this time's gap comes from news that another two healthcare centers have adopted its BREVAGenplus breast-cancer detection tool. previous two up-gaps were also fueled by BREVAGenplus's acceptance into other facilities. The causational trend of "healthcare center adopts BREVAGenplus, GENE shoots up" has important implications for the investors of GENE; essentially, it says that we can expect a price spike whenever a new healthcare center jumps on the bandwagon.

GENE Summary:

• GENE is up nearly 23% on the back of a PR that mentions a 33% increase in its customer base.
• GENE’s price has a consistent pattern of experiencing an up gap when it acquires a new healthcare center as a client.
• I was previously bullish on GENE for my penny stock newsletter as a position trade, but now GENE is shaping up to be a suitable long-term investment for speculation.
• Fundamental investors should perform due diligence, but consider focusing on the current reports rather than the annual reports.

A press release distributed on April 20 states:

"Gene ("Company") is pleased to announce that a further two (2) new breast health centres will begin to offer BREVAGenplus(R) to their at-risk patients in a systematic fashion. This is in addition to the six (6) breast health centres that the Company previously announced were set to adopt BREVAGenplus, of which all six (6) have in fact provided samples during the March 2015 quarter. With an additional number of new breast health centres expected to follow suit later in calendar year 2015, the Company reiterates that it expects sales growth to accelerate in the second half of calendar 2015 and beyond… While these centres are more complex entities with longer sales cycles, they offer higher and more stable long-term revenue potential."

I had previously recommended GENE in my penny stock newsletter, advising my subscribers to buy at the end of January and sell after the spike in February. But now GENE is looking more suitable for a speculative long position, especially now that it is technically no longer a penny stock. As per yesterday's press release, GENE looks to focus on large breast-health centers, which puts it in a highly niched vertical. Those in marketing can tell you that a niched method of expansion is not only easier than a shotgun approach often used in horizontal markets but also makes it easier for a company to expand into horizontal markets. Should it continue down this path, as planned for at least until the end of the year, every additional breast-care facility adopting the BREVAGenplus should lead to a surge in GENE's share prices, while at the same time positioning GENE for horizontal expansion should it attempt to produce other biotechnologies. And from a marketing perspective, they stand a significant chance of dominating this market, as per the recent PR:

"By working with these breast health centres and health care practitioners, the Company has developed a protocol where women who may be at significant risk and have little to no family history of breast cancer, are being screened. Pilot programs have been instituted which essentially create a 'safety net' for their patients, by assessing both hereditary as well as sporadic breast cancer risk… This significantly changes the landscape; the paradigm shifts from detection and intervention to risk assessment, prevention and even earlier detection."

If GENE can position its product as a preventative measure for breast cancer, it will surely garner the support of public health professionals, who have long championed early detection and prevention over intervention after-the-case. But this is more of a marketing move than a usefulness move: for its shareholders, GENE's goal should be to build its product's reputation so that it can build a strong user base. The data on the usefulness of BREVAGenplus in preventing breast cancer will require several more years before conclusions can be drawn. Once that user base is built, GENE can easily expand in at least two major:

1. Horizontally. With its foot in the door of major health centers, GENE can expand its product line to serve other demographics, such as the huge and affluent boomer generation.
2. Geographically. Realize that GENE is an ADR for an Australian company. One ADR share is equivalent to 150 GTL shares in the Australian Securities Exchange. Should GENE's BREVAGenplus find success in Australia, it should open the door to expansion to both its neighbors (China, Japan, and Southeast Asia) and its English-speaking colleagues (the United States and the UK).

I am bullish on GENE, for two reasons. First, GENE's gap-producing news events are unpredictable but becoming ever more frequent. Though on the market for over a decade, GENE has only experienced five significant price spikes. Four of those were in the past five months, all as a result of news related to the healthcare market's response to BREVAGenplus. Every time a new healthcare center adopts BREVAGenplus, investors can expect another 10% to 30% increase in GENE's share price. As growth within a niche market tends to be exponential, GENE's upward progression could very likely be faster than a linear regression model would predict.

Second, GENE is safer from bad news than other biotech stocks. One reason for this is that unlike larger companies, who are already well established, GENE has much to gain and little to lose. The second reason is that, though GENE is technically a biotech company, their products don't require ingestion or other forms of bodily modification that could lead to side-effects and therefore litigation. With the likelihood for bad news low, investors can gain the potential growth of a biotech stock without needing to expose themselves to the risks that often come with these stocks.

With its low price - technically a penny stock for the majority of the past year - GENE is suitable for a portfolio that wants some exposure to speculative long-term growth or position trades. A $2,000 investment at the time I recommended my subscribers to buy (January 30th), would be worth $3,567 now.

I am personally invested in GENE, treating it as a long-term hold. Its decision to market to vertical niche should allow it to focus its resources on dominating a single market, which is GENE's best bet to staying above the penny-stock level. I believe that investors looking to invest in GENE should perform their due diligence. I would point you to their 6-K current report, as their annual reports are quite dated and don't represent the happenings that have occurred with GENE within the last five months. It's easy to be optimistic about GENE's entrance to the breast-cancer prevention market and make statements such as, "GENE is sitting on a multi-billion dollar market." But revenue of such magnitude is not realistic in the short-term. For any new healthcare product, a company must engage in two campaigns: education on its use in healthcare facilities and the indoctrination of the general public to consider the product essential. GENE has already handled of the monetization side of BREVAGenplus - the real question is how it plans to educate and indoctrinate.

A final word: Though I recommend a long position in GENE, I am not necessarily recommending you buy now. We just experienced an up gap, but the post-gap candlestick analysis hasn't confirmed whether this price will hold. Notice the red candlestick, a relative rarity for a upward breakaway gap, in the chart below. Whether a support level forms below this candlestick in the following week is one question you must consider before determining the best price to open a position on GENE.