BIOLASE is Ready to Boil Again (BIOL)

Looking for a quick, high-odds bullish trade? Then look for further than BIOLASE Inc. (NASDAQ:BIOL). This small medical equipment company has had nothing less than a miserable 2013, falling from a peak above $6.00 in April to a multi-year low of $1.16 on Wednesday. But, the size and scope of that plunge from BIOL has also dropped all the tell-tale hints that a rebound is nigh.

A little background... most of the 80% pullback from BIOL over the past three months has stemmed from concerns over the lack of liquidity, and the ensuing likelihood that dilutive fund-raising was inevitable. Sure enough, BIOLASE Inc. confirmed it would be raising money - a lot of it - a few days ago, accelerating the selloff it was already suffering due to a slow sales start with some of its equipment in the first half of the year.

A funny thing happened on the way to disaster, however - the sellers overshot.

There are actually two things going on here that point to bullishness for BIOLASE in the near future. One of them is the fact that the planned fund-raising is only going to be about 15% the size of the finding that was originally suggested. Yet, even with that minimal amount now being raised ($5 million), that should be enough to make a dent, buy enough time for BIOL to garner a little more sales traction, and end up working its way out of a tight fiscal situation.

The second clue suggesting BIOL is ready to swing back into a bullish trend seems to coincide with the good news that the dilution will be far less than first anticipated, though the timing is coincidental (probably).

The technical term is capitulation. In layman's terms, things have gotten as bad as they can get for BIOLASE shares. The stock's been hammered over the past five trading sessions, on high volume, telling us that plenty of shareholders have been getting out as quickly as they could. In retrospect, they were getting out too fast, and too zealously. They overdid it, and now BIOL is more than oversold - and ripe for a rebound - as a result. 

To be clear, the likelihood of a strong reversal here doesn't make BIOL a long-term buy. This is just a short-term call designed to take advantage of a short-term mistake the market collectively made. But, boy what an opportunity it is. While normally steering clear of excessively-strong moves is prudent, this is a case where the recent drubbing has been so horrific, there's a ton of room (as in triple-digits) to recover. It may not pay to be penny-wise and pound-foolish here.

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