Short-Term Swing Trades 2 Week Report Card, With Deeper Analysis

by: StockMatusow

In this article I wrote on January 23, 2012, I listed several stocks I felt were good short term swing trades. I will go over the original picks, see if they panned out, and grade myself on how I did.

Original call: Biosante (BPAX); Might be good for a pop up to 1 dollar.

Price at time of pick, 0.66 cents. Closing price as of 2/6/11, $1.05.

Grade: A.

I remarked on January 25th that the chart showed a very oversold condition on Biosante. I recommended people trade it up to the FDA approval decision date of Feb. 14, 2012. On that date, whether approved or not, Biosante will sell off in my opinion, and head towards micro penny Abyss. I also gave strong opinion in the form of a warning that people should curtail their greed on Biosante. Do not believe the current hype about T-Gel. Biosante would be lucky to see 2 million a year from their 5% royalty cut from it, with 1 million a year being more in line. This revenue equates to barely 10 days of the current Biosante cash burn per month.

Just because I recommended Biosante for a swing trade which has panned out, please do not confuse this with a long term investment recommendation from me.

In a recent press release from Biosante, the company commented,

BioSante continues to investigate alternative strategies to utilize the continuing LibiGel cardiovascular event and breast cancer safety study, and also has begun to explore new product development projects through in-licensing and mergers and acquisitions.

Take note that Biosante indicates a desire to develop projects through mergers and acquisitions. Where will they get the money for this? Well, normally what happens in these cases is the company will dilute the stock with additional share offerings via convertibles.

This is the first step into "toxic convertible financing." The Rally we saw recently in BPAX is likely part one of this process. The goal is to get the share price to a certain level where BPAX can get this financing and issue convertibles at a much lower price. When the bonds are received, they are converted into shares and sold at the current market price.


Let's say Biosante issues convertibles at $0.50 cents a share. Those who hold the convertibles can take positions in the stock at $0.50 cents, then sell at the current market level over 1 dollar. They make a fast double right off the bat. What usually happens is that the stock price becomes very depressed again from these convertibles being sold, as well as seasoned short traders piling on.

This normally will equate to an eventual stock reverse split. This scenario is then run over and over until the stock sinks into micro penny abyss, with each subsequent go around supplemented with increasing company press releases, otherwise known as "pumps," to sucker in a new batch of unsophisticated investors for the convertible holders to "dump" their shares on. The Toxic financiers make a ton of money, while the duped end up with monster bags.

I have sadly seen this game played out many times in my years associated with the stock market. I can even say I have been approached by several entities asking me to write positive articles on Biosante, whom I suspect were attempting to get me involved in their game, no thanks!

I pride myself on having investment integrity and ethics. I might accidentally in haste at times make misstatements, but I never have intentions to deliberately misstate the facts about any company, its products, business, and its subsequent stock.

Be very careful with Biosante not to fall in love with the hype. Always be sure to do your best due diligence review of any and all stock picks, long or short.

T-Gel, if approved, faces a very saturated market. There is no disclosure anywhere to be found in any official SEC document that states what kind of upfront and milestone payments Biosante receives, if any.

In my opinion, if you happen to buy the stock or have bought it, it might be wise to take any profit you may have. I know many reading this will believe I have a short position in Biosante. This simply is not the case and has never been the case. I have never made one trade in Biosante stock, ever, and can offer proof to anyone willing to wager me on my assertion here.

I just have a very strong negative opinion about what is going on with Biosante. As I stated prior, I have seen this scenario many times before in the stock market.

Original call: Pacific Ethanol (NASDAQ:PEIX); Might be good for a short term pop to $1.60, higher on potential earnings upside surprise.

Price at time of pick, $1.15. Closing price as of 2/6/11, $1.10.

Grade: D.

I cannot recommend Pacific Ethanol for anymore than a quick swing trade, and this pick might be the only one in this list that does not pan out.

On December 9, 2011, the company closed its $4.6 million purchase of an additional 7% ownership interest in New PE Holdco LLC, increasing its total ownership interest to 34%. New PE Holdco LLC owns and operates the four Pacific Ethanol production facilities. In addition, the company closed an $8.0 million private placement of 7,625,000 shares of common stock and warrants to purchase up to 4,956,250 shares of common stock.

I am never wild about private placements with warrants issued. PEIX might have been seeing operating cash flow issues;

Income Statement
Revenue : 793.64M
Revenue Per Share : 41.82
Qtrly Revenue Growth (yoy): 490.00%
Gross Profit : -811.00K
EBITDA : 10.03M
Net Income Avl to Common: -7.97M
Diluted EPS : -0.35
Qtrly Earnings Growth (yoy): N/A
Balance Sheet
Total Cash (mrq): 16.81M
Total Cash Per Share (mrq): 0.20
Total Debt (mrq): 113.25M
Total Debt/Equity (mrq): 95.07
Current Ratio (mrq): 3.27
Book Value Per Share (mrq): 0.56
Cash Flow Statement
Operating Cash Flow : -30.83M
Levered Free Cash Flow : -43.12M

The numbers above do seem to confirm my suspicions about PEIX. It might be a good idea for me to reconsider this pick. I do think it is possible if it sees a bit of a short cover rally, but there are better stocks out there to swing trade with.

Original call: SIGA Technologies (NASDAQ:SIGA); I still remain bullish on my call to see a move to over 4 dollars with Siga.

Price at the time of original pick, $2.57. Closing price as of 2/6/11, $3.72.

Grade: A-

I wrote in another article, that I expected SIGA to make a move to the 4 dollar range in the short term. At the time of my original write up on SIGA, the stock was trading at $2.57.

Yesterday, on 2/6/11, The stock hit an intra-day high of $3.78, coming very close to my $4 dollar target.

The SIGA CEO bought a substantial 50k share block prior to the move. This was one of the bull signals I considered for making the call on SIGA to move into the 4 dollar range. On December 12th, 2011, SIGA Technologies disclosed that it received a payment of approximately $36M from the Biomedical Advanced Research and Development Authority of the United States Department of Health and Human Services, or BARDA.

The payment, in combination with a previously received payment of approximately $5M, constitutes full receipt of approximately $41M in advance payments permitted under the company's $435M amended smallpox antiviral contract with BARDA. This has certainly helped the stock price as well.

There has also been some street rumor that SIGA is close to settling most, if not all of its legal issues. Therefore, I remain bullish for my short term swing trade prediction to come exactly to pass.

Original call: Arena Pharmaceuticals (NASDAQ:ARNA); Short selling exhausted, volume slowing down while pps remains steady. Short cover pop to $1.80- $2.00 is possible.

Price at time of original pick, $1.62. Closing price as of 2/6/11, $2.04.

Grade: A+

Call complete as Arna has crossed the 2 dollar range. I recently wrote in an article that I now think Arna could be a 3 bagger this year.

I expect Lorcaserin to receive approval in July of this year. Arena originally received a CRL from The FDA in the first attempt at getting Lorcaserin approved. Lorcaserin could be a very important treatment for obesity as it is a weight-loss drug that has serotonergic properties and acts as an anorectic. Also, Arena received a $50M upfront payment from Japan-based Eisai Pharmaceuticals to sell lorcaserin in the U.S and will receive an additional 60 million dollars if Lorcaserin gains approval.

Arena will manufacture the drug itself at a facility in Switzerland, and sell the drug to Eisai at an escalating rate of between 31.5 percent and 36.5 percent of Eisai's estimated annual U.S. sales.

Arena is also eligible to receive up to an additional $70M in regulatory and development milestone payments. This deal could be worth as much as 400 million dollars or more for Arena. These factors make Arena a strong speculative buy, but with heavy risk attached to it. If Lorcaserin fails to be approved this time around, Arena shares will head into the abyss of Davey Jone's Locker.

Original call: Acorda Therapeutics (NASDAQ:ACOR); Down move towards $25 was expected, up trend channel intact, short term pop to 27 is possible.

Price at time of original pick, $25.34. Closing price as of 2/6/11, $27.25.

Grade: A+ The call was right on the money. I really like Acor for the long term. You can read my in depth article on Acorda here.

Yesterday, on 2/6/11, Acorda announced that the company has partnered with Watson Pharma (WPI), to introduce tizanidine hydrochloride capsules, an authorized generic version of ZANAFLEX CAPSULES. Tizanidine hydrochloride is a short-acting drug indicated for the management of spasticity. Because of the short duration of effect, treatment with tizanidine hydrochloride capsules should be reserved for those daily activities and times when relief of spasticity is most important. Acorda will receive a royalty from Watson based on product sales.

As well, because Acorda currently has two drugs approved by the FDA, it is a decent acquisition target for larger pharmaceutical companies notwithstanding other factors.

Original call: Elan (NYSE:ELN); Inverted H&S, within a strong upwards trend line. Elan makes an upwards move every time this pattern appears on it's chart. A move to $14.50 looks very possible for this swing trade.

Price at time of original pick, $13.34. Closing price as of 2/6/11, $13.88.

Grade: C

Elan is about halfway to my target swing trade price so I get a middle C grade for this pick so far.

Short selling is still up on Elan as I last reported. These short sellers must be aware of the what the chart shows technically and will not want to be caught in a squeeze. This bio-pharma also has some interesting potential catalysts to drive the pps;

Elan has a best-in-class multiple sclerosis drug Tysabri, which is co-partnered in sales with Biogen Idec (NASDAQ:BIIB). The drug is both sold in oral pill form and as a subcutaneous injection.

Biogen's fourth-quarter earnings rose 25% as the company saw revenue grow faster than expected, helped by increased sales of Tysabri and Avonex. The increased sales growth of Tysabri should continue to benefit Elan as well, as sales of Tysabri rose 11% to $269 million in Q4 2011. Elan may be a stock to consider for a longer term buy and hold.

There you have it, my report card on the swing trades after 2 weeks, and some deeper analysis of the picks.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.