Oct 18th Weekend Edition and Forecast Update

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Its been a typical September-October swoon in our opinion, a common period of time in the markets when corrections occur and also bottom out.  The markets historically have put major pivot bottoms in during the fall mostly due to seasonal factors.  There is a whole rush of traders that come back in September from August vacations.  Portfolios get rapidly adjusted, turnover picks up along with volume of trading.  Then you have the end of 3rd quarter “window dressing” period when managers sell the losers from the quarter and add the winners.  This is often followed by a downslide in October as portfolios are once again adjusted.

We have seen a classic ABC correction pattern in the Russell 2000 small cap index from the June/July highs to this weeks lows.  The IWM ETF fell from 120 to 103, about a 14% correction.  In the same period of time, the SP 500 fell about 9% but not really until the last 3 weeks or so did the large cap stocks catch up with the small stocks.

A move over 110 on a closing basis for the IWM ETF would likely confirm a bottom in the small caps

1018 iwm srp

This week we pointed out a bullish divergence building mid-week when the Small Cap index stopped declining while the large caps were underperforming on the downside. Later in the week the small caps rallied hard off their lows as much as 5% plus while the large caps lagged.

It would appear most of the damage has been done and the market had a much needed washout.  We have a few metrics to look at right now that are of interest.  The NYSE short interest has been declining at a rapid pace while the market has dropped, this indicates shorts are starting to cover their bearish bets.  Also, in the most recent survey of money managers the percentage of bulls has declined to 37.8% from a high near 56% late in the summer.

In addition, the pure technical pattern shows a possible “Bullish Reverse Head and Shoulders” pattern on all the indices.

1018 spx srp

 

We would not be surprised though to see a pullback and gap fill re-test of the Thursday closing prices early next week, and resistance at 1910 on the SP 500.  Also, an eventual re-test of the 1820’s lows in the SP 500 can’t be ruled out either.  We had a nice Gap fill from the April 2014 lows on the SP 500 early in the week with one more at 1770 area from February still sitting out there, worth us watching.  A great real  bottom would come in at 1775-1795 which we pointed out early in the week, but we will have to monitor and advise our subscribers on near term patterns. Also, the SP 500 and Dow have not appeared to complete a more traditional ABC pattern, so the current rally may be nothing more than a B wave run up, followed by another leg down…

Resistance for the SP 500 comes in at 1927 and 1944

We are concerned the Ebola outbreak could freak traders and investors out if it is not contained soon…

Early in the week at the SRP service we  got stopped out of a few good growth stocks that then declined quite a bit further after we sold, many of them recovering late in the week.  We did manage to sneak in a 24 hour 17-20% swing trade gain on FNMA though, which was nice.

For the first time in several weeks we are spotting a few stocks that are looking more attractive in terms of valuation and entry points than we have seen in awhile. With that also said, the chart patterns on many are not out of the woods even with the late week rebound.

A few that we will keep a close eye on for possible pullbacks before entering or breakouts include the following:

SWKS- Skyworks Solutions- Raising guidance for 4th quarter

MANH- Manhattan Associates- Supply Chain Software provider, leader in group

GILD- Gilead Sciences if it can close over $103, PE ratio at 12x 2015 estimatesw with strong growth

CUDA- Barracuda Networks looks very strong now

BABY- Natus Medical also looking good as it hits 52 week highs Friday in an uptrend

EXAS- Exact Sciences- $23 a share range. We first wrote about them at $16.75. They got approval for reimbursement rates of $502 per test for their DNA based colon cancer test, a nice platform from which to grow (Alternative to traditional Colonoscopy Screening)

BABA- Alibaba looks like it bottomed at $82 this past week, probable test of $100 coming soon market willing

Several Biotechnology names we like, one of which has been reserved for our Premium members only in a full report sent out a few weeks ago we think can quadruple in12-18 months, but there are quite a few of interest and are often market agnostic.

Best of luck with your trading this coming week and ahead

The Stock Reversals Team

www.stockreversalspremium.com (Premium service with active short term, intermediate, and long term positions)

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MBLY 12%

FNMA 17-20% Week of Oct 13-17th

 

 

 

 

Oct 1st- Classic October Bottom Forming

The typical September-October swoon is probably coming to an end this week if we are right. Seasonality plays a big role as money managers get back to work in September and begin to adjust their portfolios. Then at the end of the quarter window dressing also takes hold, adding to the volatility of stocks.

Right now we are seeing the same oversold bottoming indicators we pointed out to our subscribers in May and early August this year, especially in the small cap indexes.

A few components we look at include the Volatility Indexes, Sentiment Surveys of Advisors, NYSE Short interest ratios, Put to Call levels, as well as correction patterns and human behavior.

We show you a few below that look like they are re-testing summer lows and setting up for a big market rally in the 4th quarter, it’s time to buy!NASI Summation Index is nearing the May and August oversold lows:

 NASI Summation Index nearing May and August indicator lows

101 nasi

Volatility Indexes also trading near August lows for our indicator

101 vxo

The Percentage of NASDAQ stocks trading above 50 day MA line has plunged

101 nasdr

New Highs vs. New Lows indicator at lowest levels all year, lower than May 2014

101 new highs

Classic Human Behavioral Pattern- The ABC Correction in Small Caps

IWM ABC

Now is the time to accumulate your favorite oversold and undervalued technology names, biotech names and more.  Focus on the valuations, share structures, insider ownership, and pretend you were considering buying shares in a private company… what would you pay? Now is the time to be aggressive.

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Sept 27th Weekend Edition- Market Notes and Stock Ideas!

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In this Weekend’s Report, we cover the state of the stock market, the recent drop in the Small Cap index, the Advance Decline Line issues, New highs vs. Lows, Put to call ratios…

and… 8-10 fresh ideas to consider during this volatile period for fresh money

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9/13: Weekend Market Edition-9 New Ideas and More!

Welcome to StockReversals.com Weekend Edition.

We try to provide some fresh perspectives on the market and 8-12 new ideas to review or consider as possible actionable stocks near term.

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9/13/14 WEEKEND REPORT WITH 9 NEW IDEAS

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Update on Conatus (CNAT) 9/3/14- Members Only

Conatus Pharmaceutical- $6.50 close of 9/3/14

94 cnat small

September 2nd Updated Corporate Presentation Link

Biotech Disruptor Update: Recent pullback provides attractive entry. Targets $12-$19 3-6 month potential. In addition, company is hitting the roadshow circuit today September 4th in front of large investors.

Recently the valuation and stock price of CNAT has come under a correction mostly due to lack of Top Line phase 2 data we are awaiting, and also we believe alot of recent confusion related to Corporate filings and recent events and announcements.  Our opinion is this confusion and short sightedness amongst investors and traders is giving market participants an amazing lower risk entry point into what could be a 70-200% gainer over the next 3-6 months.  We do our best to explain below and will disclose as well that we are aggressive buyers over the last several trading days at 6.75 and below especially due to this opportunity.

We are big believers in doing the fundamental research, understanding the catalysts for shareholders, and adding to our positions on weakness in our favorite companies.  We often mention them on Stocktwits such as BLUE ($23 in May and now nearing $40, TEDU at $9 and ran to $15, LEJU at 12 which ran to 18, and the list goes on.  In short, we like misconceptions or laziness by investors that provides us great money making entry points in individual stocks/companies.  We think that is the case now with Conatus (CNAT)

We had originally written a full report on CNAT as a Biotech Disruptor at $7.70 per share a few months ago.  We said a 6-9 month holding period could yield a $12-$30 stock price for upside potential. We compared CNAT with ICPT in the liver treatment space, with Intercept having a 5 Billion market cap and CNAT only 120 million. Now, CNAT is at about 100 milion in market cap at $6.50 per share with the recent misperceptions and confusion on filings and other data or lack thereof.

The stock has been as high as $8.80 and as low as $6.10 per share recently since our report.

With ICPT moving forward with NASH studies, CNAT traders and investors were hoping for a much faster data release turnaround on NASH studies they are conducting.  When they announced a few weeks ago they would delay top line data on their NASH trial into 1st quarter 2015, short term investors sold the stock off.  Around the same time as they were filing their 10Q quarterly report as required by the SEC, they also congruently filed a “Shelf Registration” for up to 150 million. This spooked investors and they sold the stock again.  A shelf registration is very common in Biotech because due to pending data companies are often locked from offering stock with near term data from trials and or insiders are  blacked out.  So when a company has a window ahead of top line data coming out, they may file this shelf so they can raise funds easily and at attractive stock price levels.

Our opinion is that investors who understand the story and what management is doing are not worried, but short term traders are too lazy and they sold on this NASH delay and Shelf news.  What we believe is really going on is prudent management of shareholder funds, which frankly the company has consistently demonstrated.  They believe the best near term opportunity for shareholders is for them to pursue indications for ACLF or Acute on chronic liver failure.  The most direct pathway to a phase 3 trial and FDA approval regulatory wise is to move the ACLF indications up in the cue.  To wit, the company has 3 top line data results expected between now and the end of the 4th quarter…and it is these results that we expect could propel the stock much higher.  There is an immediate unmet medical need regarding  ACLF conditions and management believes shareholders are going to be best served near term going after this area.  The company also plans to market for this indication on their own, hence the need at some point to cash up.  Our take is management is making a bold chess move that should pay off in a much higher market cap, and then they will raise some funds at much higher prices per share.

Some have also espoused on Stocktwits that a very recent filing had this actual topline data in it.  Nothing could be further from the truth, in fact the filing they just make is an Investor Presentation dated 9/2/14 that they plan to use starting 9/4/14 (Thursday) in front of institutional investors.  The SEC likes all investors to have access to the same information, hence the filing.  In that presentation, the data that is included is actually as much as 10 years old, and not newly released top line phase 2 trial data.  So once again, lack of understanding and confusion has caused the share price to fall recently because some traders thought the company was burying this data and not putting out a Press release. We contacted the VP of Investor Relations on September 3rd and this is what he said:

The only confusion I’ve encountered was in connection with a reference to data from a previously completed trial in our About Emricasan Clinical Development section. The referenced trial was completed about ten years ago, before the predecessor company, Idun Pharmaceuticals, was sold to Pfizer. This language has been published and has been included in many of our prior releases for its historical value. We will announce results from ongoing trials when they become available.
Sincerely,
Alan Engbring
We would bring to your attention this quote from The Behavioral Economist in his 8/25/14 Seeking Alpha article which has a $19 3-6 month target on CNAT and updates:
The company is focused immediately on indications and ailments which allow them to meet two fundamental prerequisites; (1) pursuing regulatory pathways that have clear definitions at the FDA, which increases the probability of late trial success and approval, and (2) focusing on dire illnesses, with the possible consequence of death being front and center, in order to capture the attention of the FDA, enrolled patients, and the medical community. NASH, while enticing and a point of focus, doesn’t meet those two criteria, respectively. Thus, the delay of NASH results is a non-issue, whereas the anticipation of top line data later this year from trials such as the pharmacokinetics study in ACLF should be of great interest.
…It is clear the company is preparing for, what they anticipate to be, positive trial results. After all, each of these existing trials represents a potential indication to pursue at the phase 2b and/or phase 3 levels, and with a registered shelf they are in position to pursue such without delay if applicable. All of these decisions, according to Mr. Engbring, are not only judicious and confident, but also in the best interest of shareholders.
In summary, we remain very excited about the investment potential for CNAT shareholders and as such, we have been steady buyers under $7 and aggressive in fact recently under $6.75 per share.  We  believe the combination of short term thinking by traders, misunderstanding of filings and top line data releases (3 due in next 3 months) are creating a low risk entry with massive upside potential.
Just our opinion, as always… our terms of use agreement always applies to all communications.

8/31- Weekend Edition- 8 Ideas & a Hot Sector!

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