Anatomy of a (Successful) Trade: Xeris Biopharma
Let me take you through the thought process and strategy behind my largest position and how it is continuously evolving.
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The Magnificent Seven names are lagging Thursday, while small-caps show relative strength. Following an intraday reversal and a weak close on Wednesday, we are seeing some downside follow-through on Thursday, mostly in big-cap technology. The semiconductor sector (SMH) is down 1.7% and the Magnificent Seven is down 0.5%.
The good news is that the Russell 2000 (IWM) is up about 0.5%. This is pushing breadth into positive territory with about 57% of stocks trading higher. Speculative interest is present, and selective stock picking is working.
The Setup in Xeris
On Monday, I highlighted Xeris Biopharma (XERS) as an intriguing buy following news that a competitive product had been rejected by the FDA. I put my money where my mouth was and made it my largest position. On Thursday morning, the company issued positive guidance and a very upbeat forecast.
This is a good example of my approach to strategic trading. I want to review the thought process behind my strategy for this stock and how it is continuously evolving.
I have followed Xeris for a long time and have likely traded it hundreds of times. I know it well and have a solid understanding of its fundamentals. As I have outlined several times in my articles, I am optimistic about its long-term prospects.
Varying Position Size
The way I approach a stock like this is to vary my position size substantially depending on my view of technical conditions, potential catalysts, and overall market conditions.
In this case, XERS pulled back sharply in November following a good earnings report due to uncertainty about its guidance for a key drug in 2026. Furthermore, its major catalyst, a new drug, is still more than a year away.
When a competitive drug received a CRL (Complete Response Letter) from the FDA, it was clear to me that XERS would benefit. However, the stock gapped up and then gave back all of the gain on the news. This move was not justified, but the poor price action kept buyers on the sidelines because they did not understand the implications. I saw this as an opportunity and highlighted it on Monday when the stock was in the $7.20 range.
The company has preannounced good earnings in previous quarters, so I thought that was a possibility. I was surprised, however, that they did so on Thursday and so emphatically.
Now What?
I have taken some profits into the strength and will look for opportunities to rebuy. The gap created on Thursday morning is now the key support area along with the 50-day simple moving average. I’m now focused on finding more entry points as the stock digests this news.
The next big catalyst is likely to be 2026 guidance, but that may not come until after fourth-quarter earnings are released in February. There may be investment presentations in the meantime. If there are, I will be looking for positive comments regarding the failure of competitive drugs.
The important point here is that I have increased and decreased my position size aggressively as the chart develops and catalysts come and go. I see a lot more tradable potential in this stock in the future and will continue to follow it closely.
This sort of trading requires a lot of time and effort, but as you can see, the payoff can be very good, especially if there is a little good luck to help.
At the time of publication, Rev Shark was long XERS.
