Professor’s Comments July 26, 2013

Posted by professor  at July 26th, 2013

The Dow rose 13 points, closing at 15,555.  Volume was moderate, coming in at 106 percent of its 10 day average.  There were 163 new highs and 112 new lows.

The increase in new lows was enough to reverse the direction of my Hi-Lo indicator and turn it south.  This is coming at a time when the P-volume and the Coach (Money Flow) on the QQQ is also negative and diverging.  In other words, wave 2 down could be starting.  And with that negative P-volume on the Q’s, I would be especially careful with Nasdaq stocks now..

There was another small change in the A-D oscillator last night, so once again we need to be on the lookout for a Big Move.  We actually got a Big Move in price yesterday, but the 100 point move was intraday.  The Dow traded down to 15,455 early, before turning around to reach a high of 15,560.

I don’t usually trade biotech companies, mostly because I don’t understand them.  It’s not that I don’t understand the product they make (drugs), I’m actually OK with that part.  The part I don’t understand is how biotech’s react to news.  It’s always wild and irrational!

For example, you all know that I have been watching Vertex Pharmaceuticals, VRTX, for the past few weeks. The Rifle Trade I was watching on the 60s yesterday was almost triggered as its shares gained 2.36 at 87.62.  (The trade was NOT triggered yesterday as the 60s never turned Green).  But last night after the market closed, Vertex reported the FDA stopped a clinical trial of a drug they were testing to cure the hepatitis C virus.  The reason cited was because a 400mg dose of the VX-135 ingredient in the drug caused reversible elevated liver enzymes in patients in a Phase 2 study in Europe.  They had already tested the drug with 100mg and 200mg doses of the VX-135 ingredient in Europe and it reduced the disease by 70% and 80 percent respectively, with no adverse effects.  None. So they wanted to test the 100mg and 200mg dose to get it approved in the U.S.

But out of the blue, the FDA steps in and stops the 200mg test, because the 400mg dose appeared to cause problems.  And because the tests were stopped, even though the 200mg dose level was proven successful in Europe, the stock drops 9 points in the after market.  Go figure?

This partial clinical hold only stops the evaluation of the 200 mg dose temporarily.  The evaluation of the 100 mg dose will continue as planned. So one would think the reaction is a bit overdone.  But that’s biotech.  The company said it is committed to continuing to work closely with the FDA to provide the data needed to support evaluation of a 200 mg dose of VX-135 in the U.S.  But still the stock drops 9 points.  Hmmm?

The reason I’m writing about VRTX this morning is because even though the stock will likely open significantly lower, it remains in an Uptrend.  I’m not sure if all of the PT indicators will remain positive on the Daily Charts, but if they do, VRTX will still be a Rifle Trade buy on the 60s.  Just be careful and realize up front just how volatile trading biotech stocks can be.

Emeritus was quiet again last night, so I’m on the sidelines, except for my TBT Rifle Trade.  Again, I’m waiting for wave 2  to complete before getting aggressive.

That’s what I’m doing,

h

All of the commentary expressed in this site and any attachments are opinions of the author, subject to change, and provided for educational purposes only. Nothing in this commentary or any attachments should be considered as trading advice. Trading any financial instrument is RISKY and may result in loss of capital including loss of principal. Past performance is not indicative of future results. Always understand the RISK before you trade.