Intuitive Surgical Saved by the Bell

Long time readers recognize that I view trends differently than most chart readers, including how and when trends die and reverse. For example, there was my recommendation to sell 1/2 of our position in Intuitive Surgical (ISRG) at ~$335, while Wall Street (Jim Cramer included) were ga-ga for the shares. Although not explained at the time, one perception I employ is the difference between the momentum, price, and breadth high prices. (And vice-versa for the low prices.) Market watchers will recognize these chart points as double, triple, and head & shoulder tops (and bottoms); I prefer to sell during the momentum high but purchase during the breadth low.

Well, the price and news from Thursday verged on the need to liquidate the remainder of the ISRG position, but as this post's topic header has it, the position was saved by the bell. First, the 'news' that the company's CEO stated during a conference Thursday morning that slower growth and lower margins for the company loomed dead ahead, which caused traders and investors to sell hard, was later refuted to be rumor. Then the share price closed spot-on at multiple levels of support (200 day sma included), setting up the possibility for a downside price gap on Friday's open.

After the markets closed, however, came news that Intuitive Surgical will become a member of the S&P 500 index, which news typically causes index funds to purchase immediately the shares of the new addition. Intuitive Surgical shares reacted accordingly to the sudden onslaught of buy orders by surging to ~$287, and continued near that level Friday morning in pre-opening trades.

But how likely will ISRG be to hold these levels, and not turn lower once again? Remember that the shares have merely reversed, at worst temporarily, and not broken above any levels of resistance. For that preliminary answer, we investigate how strong are the hands that buy and own the stock at this level...

[click on chart to enlarge]

The chart above shows volume at price (left scale) and on balance volume (bottom scale), two technical studies that measure the accumulation or distribution of the total volume. Neither study involves price, etc, which makes each study an excellent secondary analysis. (Explanations of these studies and how to use them can be found in this blog's archives, or elsewhere on the web.) For the record, I see accumulation, despite the past 8 months of sideways price activity.

For a closer-in look of the activity Friday morning, I use...

... which also betrays steady and powerful accumulation. Contrary to Thursday's rumor, comes this real news...

Cowen says that presentations at the American Urological Assn this week point to expanding use of Intuitive Surgical's da Vinci system for more types of surgery, potentially raising addressable U.S. urology procedures by 23% and the total addressable U.S. market by 6%. Cowen analysts also saw strong interest from urologists in broadening da Vinci use beyond prostatectomy, increasing their confidence level in their 63% and 49% procedure growth estimates for 2008-09. Firm sees potential upside in their 2008 sales estimate, and rates
Outperform on ISRG.

New investments of Intuitive Surgical, even at ~$280, could prove timely; perhaps equally as timely as my recommendation to buy during the last primary base at ~$85.

Full Disclosure: Long Intuitive Surgical.

Comments

[JJackal:]

ARAY , manufacturer of the Cyberknife, offers a better outcome for many prostate cancers patients than a prostatectomy. Why more urologists haven't figured this out and recommended the treatment as an option to their patients is why the stock is so undervalued. If ARAY ever gets it and makes the public aware, more patients will demand this option, driving ARAY's mkt share and reducing ISRG.

2008 May 25 12:29 PM

[hermanbrut:]

Another possibility for long term investors is CRDC which makes patented vein graft connectors and has no competitors. CRDC's products work with ISRG's DaVinci system to make possible closed-chest heart bypass operations. (biz.yahoo.com/prnews/0...)
These two companies have a lot in common:
1) Both provide better results for patients including shorter hospital stays.
2) Both have wider applications than what they were originally intended.
3) In the long run both save hospitals and doctors time and money.
4) Both make money both by selling not only the original equipment but also a lot more consumables for each operation performed. (As opposed to ARAY, whose income mainly comes by one-time sale of machines and a bit more for updated software.)

CRDC recently released data for its PAS-Port® Proximal Anastomosis System which met or exceeded FDA trial requirements and should get approval in August. (biz.yahoo.com/prnews/0...)
Right now the stock is selling at a bargain price. And yes, I do own CRDC stock myself!

2008 May 25 01:17 PM

[Donald Johnson:]

Charts are fine. I use them all of the time to complement my fundamental research on ISRG and other stocks.

Where did ISRG refute Cowen's report that the company is now forecasting lower 2008 revenues than it had previously guided? When I wrote my piece, there was nothing on ISRG's web site that refuted that report. I'll look again.

2008 May 25 02:14 PM

[Donald Johnson:]

I have not found any SEC filings or news releases that either confirm nor deny Cowen's report, which I find credible. I have no position in ISRG, but my investment club has a small holding.

2008 May 25 03:07 PM

[bigdog1:]

Urologists using Davinci beyond prostate surgery?? Not much else unless you include Renal surgery and bladder.

2008 May 26 09:47 AM

[speculari:]

Mr. Johnson; I do not believe that ISRG (or, most companies for that matter) is in the habit of attempting to refute any analysts comments, let alone those of Cowen. This is very likely a matter of policy & I'm sure a wise one in light of all the "crap" generated by so many of the so-called "analysts". Kammerman has gotten it "wrong" at least 3 times in recent past on ISRG, why would you therefore find any Cowen report credible? One can only wish that the King of Spain might appear & render the same comment to you & Mr. Kammerman that he offerred to Hugo Chavez!

2008 May 28 03:56 PM

[medsalesKLS:]

bigdog - you are right on. they are going after other specialties and it ain't sticking.... nothing to do with economy - their plan is flawed.

2008 Jun 11 02:19 PM

[borisb:]

more then a month later and the shares are cracking 250,
the breakout became drastically overbought and it looks like its going to drop to an oversold-undervalued situation. perhaps 200. new drug approvals and other emerging competition(cyberknife... may dent ISRG prosectamy market share while other surgical categories are small.

2008 Jul 05 06:51 PM

[speculari:]

What on earth is a "prosectamy"? Is that the procedure where the optic nerve is removed transrectally? No, no - that is another procedure!! The share price this A.M. exceeds $300 by the way.
I have it on very good authority that the company may be looking into the interest expressed by a small coterie of neurosurgeons (based, I'm told, in Transylvania) that believe they can utilize the daVinci to transplant real human brains into stock analysts! Wow, think about the upside on share prices if that happens!

2008 Jul 30 11:03 AM