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cbryant1990
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Well trained in numerical methods in scientific applications. My interest are in the application of scientific analysis of random fluctuations and trends in natural systems.
  • Technical Analysis of Spectrum Pharmaceuticals -Tutorial 4 comments
    Sep 25, 2009 12:18 AM | about stocks: SPPI
    Many traders would like to add technical analysis to their trading skills. With the advent of the web and the proliferation of sites offering technical trading tools, there are very few reasons why the average trader cannot take advantage of the tools available to them. To illustrate this point, we will look at three trading tools that are commonly used by institutional traders. The first is the Fibonacci retracement (NYSE:FR). The FR is commonly referred to as “the retracement” on television commentaries and blogs. It refers to a stock that has had a recent low and a new high. It describes several percentages of a drop from the highs. These percentages are the 23.6%, 32.8%, and 61.8% percent retracements. What this means is that a stock tends to drop from its highs down 23.6, 32.8 and 61.8 percent as people take profits and bad news occurs. Often one may hear of the 50% retracement. Technically speaking this is not a Fibonacci number, but institutional brokers use it so much that it has been included in the vernacular.The Fibonacci retracements are a series of number discovered by Leonardo Fibonacci, one of the most talented mathematicians of the middle ages. He discovered that certain natural phenomenon follow a certain pattern. Somehow stock brokers bought into the fact that stocks tend to the Fibonacci levels. The fact that they are taught this and believe it makes it a self fulfilling prophecy. One does not have to believe in the science behind the phenomenon, only that brokers use it in their trading.

    The second technical tool we will use it the 50 day average.  his tool needs no explaination.  It is simply used in conjuction with te Fibonacci levels to strengthen or conviction of a price point.
    The third technical tool that we will cover is the relative strength index (RSI). The relative strength index is a measure of the ratio of the recent upward movement of a stock over its downward movement. In technical terms, it represents momentum. Think of stock momentum as the number of traders times the speed of the upward or downward number of shares traded. When you have a lot of people pushing the stock higher, you have a high momentum and RSI increases. The converse happens on the way down. On light volume days, the RSI does not move significtly higher or lower. Now, one thing about the RSI, it does not take into account the dollar value of the trade. The Money Flow Index (NASDAQ:MFI) improves on the RSI by doing just that. It’s OK. We can use the RSI for now to our great benefit.
    How much of the science do you have to know to use these tools? The answer is none. You do not have to have a single mathematical bone in your body to use either of these tools. The Fib retracement levels are there for you to see, and they only tell you where the stock is heading. The RSI has two numbers to be aware of, and those two numbers are 20 and 80. I’ll explain more about that when we get to our example.
    Recently, I have been trading Spectrum Pharmaceuticals. It’s an up and coming biotech stock that has strong fundamentals, but weak expectations for earnings. It has been a good technical trade. It’s had some surprises. Take a look at the first chart and let’s create it together.
    Go to
    You may have to download and install Silverlight. It’s OK. It’s a Microsoft add on. 
    Once you have install Silverlight, you should see the main charting page. Up in the left hand corner there is a space that reads symbol. It’s highlighted in blue in my  figure. I want you to type in that box SPPI and hit enter. You should see the price action for the stock. Look at the top row. Above the chart. It should say SPPI, add indicator, and daily. If it does not say daily, click the pull down list and choose daily.   There is a slider bar at the bottom of the page. Slide the bar to the left or right until the date on the left says July.
    The first thing we want to do is add the Fibonacci levels. There’s a column of icons to the left of the chart. Find the icon that says Fib Ret. That’s short for Fibonacci retracement. Click on it and drop the first point on 08/18. That’s the latest low. Now extend the Fib line to the high on 09/03. The fib levels should say 100% on the low and zero on the high. What that means is that if the stock drops down to the low it has dropped 100%. Squeeze your timeline in so that it only shows August and September. Notice how the stock rice hovers above and below the Fib levels. It’s not exact, but it’s definitely in the neighborhood most of the time.
    Now let’s add the 50 day average. Go to add indicator (yellow ellipse in figure below). Find moving average. On the top row of the chart you can click on the down arrow and edit the period. Make sure the period is 50 and make the type exponential. Now look how the moving average offers support at the Fib levels. We just blew through the 61.8 Fib level and the 50 day average today. That’s a little worrisome, no, that’s a lot worrisome, but, I think it’s a head fake.  I think the big boys know how to play this game and they are playing against each other right now. It’s like trading chicken. I think SPPI is going back to $7.18 and not the other way o the full retracement of $6.20. Here’s why. We need the third tool hat every trader needs to answer this question. It is the relative strength index.
     The RSI is easy to use. Go to add indicator. Choose RSI. Go to the top of the chart and click on the pull down arrow. Edit. Set the period to 12. We buy at 20 and sell at 80. Look at the curve. You would buy on 07/17 sell on 08/03, buy on 08/20, sell on 09/03, and now we buy at 09/22.  If you cannot see it,look at my chart above.
    I want to remind everyone that technical analysis is just a tool. It should be combined with fundamental analysis of balance sheets, market potential, current events.  In the case of biotechs, we need to be very famiar with their pipeline.
     
    Happy trading, and I hope these tee tools help you in your trading.
     
    CAB
    Stocks: SPPI
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Comments (4)
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  • Justin M. Hall
    , contributor
    Comments (748) | Send Message
     
    Nice work Mr. Bryant! And I genuinely mean that, otherwise I would not say it.

     

    Justin
    25 Sep 2009, 05:50 AM Reply Like
  • Justin M. Hall
    , contributor
    Comments (748) | Send Message
     
    Posted on my instablog:

     

    seekingalpha.com/insta...
    25 Sep 2009, 05:56 AM Reply Like
  • CR77
    , contributor
    Comments (2) | Send Message
     
    CAB:great work and thank you for sharing this information. I have read your comments on google on sppi and you have been right on the money CR
    25 Sep 2009, 09:11 AM Reply Like
  • cbryant1990
    , contributor
    Comments (8) | Send Message
     
    Author’s reply » Thanks Justin. Thanks CR.

     

    Justin,

     

    While I have not agreed with you on you valuations of SPPI, and I have been pretty blunt about it, I have to say you are a gentleman and a scholar, and I do appreciate your in-depth research.

     

    CAB
    25 Sep 2009, 07:28 PM Reply Like
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