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H. T. Love
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Spent over 30 years in computer systems work, many different functions. Owned my own business for awhile. Got tired of it (managing employees is not my baliwick) and stopped doing it professionally. Did other things, off and on, for some more years and finally bumped into this investing/trading... More
  • An intermediate term technical look at NVAX 2 comments
    Dec 25, 2010 6:08 PM | about stocks: NVAX

    (NASDAQ:NVAX): It has been a while since I took a longer view of NVAX. So the last couple of days I took a little time and thought I would post a short summation (quit giggling!) of what I see.

    Possible catalysts that could obviate the technical analysis which follows include, but are not limited to, a Barda grant, approval by Mexico of the swine flu virus that has progressed quite far in testing there, progress by a JV partner, Cadilla Pharmaceuticals in India, in obtaining approval for swine flu and/or rabies vaccines, and a risk that an RSV vaccine that has progressed through Phase II will eliminate Novavax as a contender in that arena. And let's not forget general market action, the Fed's POMO,

    Naturally, catalysts, sector rotations, etc. could shorten or lengthen time-frames mentioned below, as well as share prices mentioned. In the following, these things are not considered.

    Considering my past accuracy, you might want to consider me a contrarian indicator. However, I've also deduced the reason for my prognostication failure, I think, and address that in a link to be provided later.


    SUMMARY as of 12/31/2010

    While examining the current chart for NVAX, I spotted what appeared to be a semi-regular cycle in the price action. Based on this and current chart technical indicators, I expect to see a new near-term low around the $2.30 to $2.35 range in the second to third week of January. A new high around the $3.00 range should occur in the middle of February.

    All this assumes no catalysts and that the patterns observed hold and I've analyzed them correctly.

    Details are below. Use your browser search function to find 12/31/2010, or just uset the keyboard CTL-END keys to jump to the end.

    SUMMARY as of 12/24/2010

    Over the longer time frame examined, 6 months, the resistance line has risen at a rate of about 5.821% per quarter while support (over only 4 months) has risen at a rate of about 7.712% per quarter, creating a rising wedge. That's not a bad return for a buy and hold position.

    (Click to enlarge)
    NVAX Annotated 150 day chart 12/23/2010

    We would expect trading ranges approximating the following values, beginning in 2011 in the quarter represented by the digit shown.

    1. $2.42 - $2.80

    2. $2.61 - $2.96

    3. $2.81 - $3.13

    4. $3.03 - $3.31

    Given the patterns seen in this stock, I expect both limits will be met or exceeded, but not for long, within this time frame.

    If the trend of the rising wedge holds, we eventually enter the risk area for a breakout, down 69% of the time. The risk area is roughly June through September of 2011 For more detail about that, see the details section below.

    The near-term outlook, a couple of weeks, is more ambivalent as we have three potential patterns that are essentially conflicting in implied meaning. The time-frame of them so far is too short – really not suitable for establishing a trend yet. Since we are in the middle of year-end “window dressing” and the start of holidays, volume tends to fall, further weakening conviction in the assessment of patterns.

    The first two possible patterns are a pennant and a flag (I've ignored an early one-day interruption of the flag pattern in order to consider that possibility), both considered a temporary interruption of an existing trend, to permit a consolidation period. Normally when a breakout occurs it will be in the direction of the trend preceding the “flag pole”, up in this case.

    If we do have a flag indicated, a critical juncture will be hit when the intra-day low hits ~$2.45, probably no later than 12/27 or 12/28 (again, possible influences are being ignored). After this price is hit, the next couple of days should show either an intra-day low continue to break below that price or begin to move up. If we don't see the low begin to move up, the flag has failed and we are more likely in the descending trading channel, touched on next. Confirmation would be a close below the ~$2.45 price for a couple days or trading range bounded by the channel.

    In order for this to happen, it would also have break the support of the pennant, taking that out of play.

    If the intra-day low price does start to trend up we still might not be home free as the pennant could be in play, but likely not much longer as most breaks occur in the first two thirds to three quarters of the duration of the pennant and we are about there right now. So don't jump to the long side until we see a consistent break of the pennant resistance line by one or more closes above that line.

    If we get through those tests, a run up to ~$2.96, let's call it $3, should occur. Since we are within the top third of the 52 week high, the run up might occur fairly quickly.

    The third possible trend is a descending channel. This implies a continued down trend. I won't say more about it right now as a view of the chart will make it's future abundantly clear to you.

    Right now, early indications (ignoring all those influences) are that it's more likely a flag and a breakout to the upside is more likely, except for one thing. Again, see the details section for further discussion of that issue.

    The early trading days of a new year are often quite exuberant, so I believe this upward move is most likely in the near term. If this turns out to be the case, we could easily see highs at the nearest resistance established May 13 at $2.85, $2.90 from April 23, or $3.05 established April 29.

    As a side note, I recall that Freya called for $3.00 in a recent comment.

    Potentially negating this upward bias is the fact that the longer-term trend resistance (which at the anticipated time would reside around $2.70 or so) would have to be violated. Note how on 12/16 we penetrated that resistance and both closed below resistance and the next day the price range immediately receded to below the resistance line and has stayed there for 5 days so far.

    So if we do get a breakout up, it will be important to note the price and volume action as it approaches that long-term resistance and the high of 12/16 of $2.71. Action around those two points would be very telling in my opinion. I would think that price would either blow right on by or quickly retrace and begin trading back in the descending channel or maybe riding the top line of that channel downward.

    If the downward channel is in control, we should see a trading range around $2.32 to $2.42 within two weeks of trading days (around January 12, 2011). If we break through the support of that channel, price should head towards $2.32 and possibly below.

    Adding to all the uncertainty are the converging Bollinger bands. This portends a change coming in the current trend, but provides no clue as to direction or strength.

    I expect to see a break of one or more of these patterns in the next few trading days. And I expect that either the continuation of the uptrend implied by the flag formation will emerge or the trading channel will be broken to the downside, temporarily.

    DETAILS 12/24/2010

    WARNING: WONK ALERT! Don't proceed past this point unless you are not bored to tears by infinitesimal details and vacillation as to what the future holds. YOU HAVE BEEN WARNED!

    A resistance line from a high of $2.36 on 6/14/10 extended through the current day (12/23/10) high reveals a long term average (calculated) rise of $0.14 (+5.821%) per quarter. The line has the origin and 3 additional touch points (give or take a penny or two) and has only been penetrated to the upside once, on the spike Thursday 12/16/10 (but on that date it opened and closed just under the resistance). The touch points are at 7/28/10, 10/13/10 and Friday 12/17/10 (and we could also claim Monday 12/20/10 – it's that close). So it seems a reliable supply (resistance) line.

     

    On the support line we begin at the low of 8/25/10 and extend it through the current date but it is touching only the lows of 11/17 and 11/18. With only the origin and two (very close) touch points, this line is considered less reliable at the moment. Calculating the slope of that line, we get an average rise of $0.18 (+7.712%) per quarter.

    From these two assessments, we can see that we have a very long-term rising wedge whose apex is about 13.5 months into the future – roughly mid-January of 2012. At it's most basic level, this is a bearish indicator. However, Bulkowski points out it is a very poor performer on a break down and a better performer on a break up.

    But that's not my concern here – the pattern is too long to be important right now. Break outs would normally be most likely from ~66% to ~75% of the duration and we are some distance from those points yet. Using this “rule of thumb”, breakouts seem most likely in June through July of 2011 if we consider the start of the trend to be the June 14 2010 resistance line start. If we consider the trend start to be the August 25 beginning of the support line, August through September of 2011 becomes our greater risk window. In the summary section, I've spanned both ranges since I don't know which is the proper start of the trend.

    Now, that's the long-term trend set up and here's my mid-term prognostication, barring catalysts or an overall major market move that drags NVAX along with it.

    Somewhere no later than the end of March 2011, a high around the $2.80 mark is likely, give or take a bit. We will also see a low somewhere in that same time-frame of around $2.42. Again, no catalysts allowed in this and we know there's likely to be something out of Barda, Mexico or India or a JV or some such.

    Note that these are quite close to a support point of $2.47 that I've been targeting as a potential add point, short-term, and some fairly recent resistance points mentioned in the summary section. And our recent lows are now near there. If we are in a descending channel, rather than working a flag, we'll hit that in just a few days. At the end of two more weeks of trading, we would see a trading range of ~$2.30 to ~$2.43.

    Let's look a little closer at near-term.

    From the top of the spike Thursday 12/16/10, we've had a drop in the intra-day high of $0.09, let's call it $0.02 per day. Drawing a resistance line, we have the origin and one solid and one pretty close touch point. We really need another touch point (which would be about $2.59 or $2.60 on the next trading day or two, but who knows when the touch will occur – especially during low-volume holidays trading.

    We can construct the support by duplicating that resistance line and placing its origin on the low of Monday 12/20/10. It's not perfect, but examining such a short time-frame we can't expect much precision.

    Now this can be viewed either as a descending trading channel, or if we ignore the huge range of Friday 12/17/10, the day after the “flag pole” was completed, we could see this as a flag.

    The difference is worth noting as the channel implies a continued downward trading range until breakout occurs, in either direction, while a flag is strongly suggestive that a continuation of an up trend will resume shortly.

    I'm leaning towards a flag right now as the opens and closes have all been rising over the last 4 days while the intra-day range is consistent 3 of those days. But, this has led to a hanging man, which is bearish in nature as it implies the bulls are losing control. It is confirmed when it is followed by some lower ranges and closes.

    So, as usual, I don't really know or even have that strong of a feeling about that flag.

    As a last caveat about that flag, I suspect that the flag pole was caused by substantial call buying and a more detailed discussion about that can be found at this link to be provided later.

    12/31/2010 Details: While looking at the chart of NVAX on my trading platform, my eye was caught by an apparent cyclicality in the price action. So I went back over the year and visually identified price peaks, added the dates and times to a table and entered a formula to calculate an approximate number of trading days, not considering holidays. I also excluded a dry spell (4/29 - 7/28) from the calculations so as not to distort the results too much. Checking for reasonableness, there was only a two day difference in the two segments resulting from that exclusion.

    Note that the formula used is the number of days between dates divided by 7 and then multiplied by 5. This approximates the number of trading days for the period, again excluding the dry spell and not considering holidays.

    % Off Prior Low is the comparison of the high ending a period to the low preceding it, e.g. $2.63 vs. $2.14. Appx. Trade Days is the number of days in the cycle ending on the Period End date.

    Period End Day's High Next Low Appx. Trade Days Day's Low % Off Prior Low Appx. Trade Days  
    01/12/10 3.17 2/8 19 2.01

     
    02/19/10 2.63 2/25 4 2.14 30.85% 27  
    03/24/10 2.72 3/31 5 2.26 27.10% 24  
    04/29/10 3.05 7/1 45 2.06 34.96% 26  
    07/28/10 2.42 8/25 20 1.94 17.48% 64 Period excluded in all calcs
    09/02/10 2.36 9/21 14 2.12 21.65% 26  
    10/13/10 2.55 11/17 25 2.10 20.28% 29  
    11/18/10 2.41 11/23 4 2.16 14.76% 26  
    12/28/10 2.72


    25.93% 29  
    Average
      12.96   25.07% 26.53  
    Median     14   25.93% 26  


    Not shown is that a peak of $3.01 was hit on 12/21/2009, which began another cycle that had a low of $2.56 on 12/30/2009 (a drop of ~15% in about a week of trading days) and the cycle completed on January 12, 2010 with a rise of 23.8% off the low and 5.3% above the prior high. Our recent December peak occurred on the 28th of December, about a calendar week later than last year at $2.72. However, we did have a near peak, $2.71 on December 16, so we could view our peak as coming in the same (rather fuzzy) time-frame.

    If the above pattern holds, we should see another low around
    around $2.31 near the end of the first week in January through the end of the second week . A peak price somewhere in the middle of February with a high around $3.00.

    However, the number of data points are insufficient to place a high degree of confidence in either the time-frames or the price points.

    Adding some confidence to this SWAG is the fact that the current version of the chart (not included in this post) shows that a descending trading pattern has begun on relatively strong volume, price is below the 20 day SMA, the 50day SMA is @ $2.38 and flattening (and we can presume an overshoot of that level) and all technical indicators are in or going into negative territory.

    There is potential support at the $2.35 level.

    DISCLOSURE: short April $3 strike calls on Novavax.

    Themes: pharma, technical analysis Stocks: NVAX
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Comments (2)
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  • Mayascribe
    , contributor
    Comments (9583) | Send Message
     
    Hard: Great work! I see the flag, but I also see a huge divergence in money flow. As you've been tracking, the short interest is beginning to drop. Your work is so recent that there is no way to know if insider buying has stepped up in the past two weeks, but I expect it has.

     

    And, as you precluded, there are a few catalysts that should be coming to fruition in relatively short order. I'll be spending late Sunday night trying to interpret whether or not to add, and how much in each of my accounts. What I categorically do know, is that I'm going to add.
    25 Dec 2010, 09:45 PM Reply Like
  • H. T. Love
    , contributor
    Comments (17250) | Send Message
     
    Author’s reply » Maya,

     

    The resent spike was caused by a surge in buying of call options.

     

    If you'll recall (I know you won't let me of so easily be forgetting that my assessment of the previous spike/drop was bearish in every way! ;-)) ), my best guess was that we would exit the consolidation be heading lower. Suddenly we got a little bit of "confetti", sentiment showed some improvement and in a day or two we started making that spike (flag pole).

     

    Well, I've taken a preliminary look at open interest and trading volume for January and April and July calls at $3 and $4 strikes. There was a surge in a couple of these in both OI and traded volume. The traded volume during the period of the "flag pole" formation jumped and accounted for several percentage points of total traded volume.

     

    I know this doesn't sound like much, but if it's market makers shorting the calls, they can essentially buy "at market" with almost no risk since the strike is >=$3 and underlying prices maxed out at $2.71. This has an effect of driving price up since we have an excess of buys "at the market" and sellers see that they can get a few pennies more.

     

    Further, market makers could have a large number of short calls from previous periods that they haven't bothered to cover yet and, seeing the increased bullishness, decide they better go ahead and cover now just in case. That could also explain the surge in volume as the "flag pole" was formed.

     

    I'm *not* discounting the normal end buyer (retail, institutional, ...) at all, I'm just looking at the possible technical effects of these derivatives on the price of the underlying.

     

    In fact, I believe that other than market makers also played a role as many may have done as I have done, garnered a 12% profit by taking premium from shorting calls and/or assuring a 42% return if the calls are exercised. Since I plan on getting more shares anyway, I can let these go, if it works out that way, with less than *maximum* profit and still have the additions to profit from.

     

    Anyway, wanted to mention this (the technical aspects of the options activity) as it is one of the things that should fade as the short-term enthusiasm wanes and offers an opportunity to garner more shares at lower prices.

     

    Also, keep in mind the comment that Mitshu posted - there's other companies ahead of NVAX in the RSV race that could cause a negative turn in sentiment down the road if NVAX doesn't make progress on it pretty quickly.

     

    I'm glad you found the work useful - it was double work because I had to also (re-)learn my favorite graphics program (GIMP) to annotate it as I went along. Not be experienced in graphics just slowed me considerably.

     

    I'll be watching and updating that "insta" as conditions warrant and I'll look for any suggests or oversights you notice.

     

    I've already found 1 - I need to use a larger font where possible.

     

    HardToLove
    26 Dec 2010, 10:48 AM Reply Like
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