I picked DVAX as the best bull chart out of 39 added today to Zacks top rankings, which derive mainly on earnings estimates. (See my essay "10,000 Charts" for a description of my screening method.)
The runners up all had good charts, and my final pick is frankly way open for debate. It was a very tough call. What finally hooked me on DVAX was the rising volume during the recent price rise that peaked last week.
The runners up were EXR in 2nd place, HUM in 3rd and DELL in 4th. (If I think of liquidity and tradeability, of course, DELL wins hands down.)
DVAX hit rock bottom in November 2008 at 15¢ a share, in the depths of the crash that followed the collapse of capitalist finance. It has since recovered steadily, with the exception of a downward correction from January into October 2011.
The price began its most recent rise on Oct. 18, from a low of $2.27, and pushed up to a peak of $3.83 on Jan. 12. (The stock's all-time high is $10.66 in November 2006, also known as the "good old days".)
Since the most recent high, last week, the price has declined for two days running -- lower highs and lower lows, hitting $3.51 in the first hour of trading before reclaiming about half of its lost ground and marking time through the next four hours. (I'm writing at about 2 p.m. Eastern.)
Put it together, and DVAX has a classic bullish chart: Steady higher highs and lows over an extended period, with corrections that are proportional to the rise.
What I hate to see most in a chart is choppiness during corrections, as bulls and bears battle viciously for control. That pattern lacks conviction. I much prefer to see a chart that smoothly declines from a high, since it shows a much broader consensus, and therefore more traders will be satisfied sooner that the correction has done its work.
DVAX has return on equity that -- well, the sort of return on equity some of my younger cousins might get with their chemistry set in the garage. The most recent ROE was minus 200%. So for fundamentalists, this is a speculative play. Warren Buffet would throw up his hands in horror at the thought of putting one thin dime in DVAX.
Debt/equity is less horrifying, at 0.34, but it's still a fairly hefty load for a company to carry.
Despite those bad numbers, institutional ownership stands at 71%. So either some very smart money managers see promise in DVAX, or there has been a resurgence of faith-based trading.
Stock options are not an option when a price is this low. And there are in fact only three strike prices available, although with surprisingly high, 3-figure open interest.
The next earnings announcement is March 7.
Decision for my account: I won't consider opening a position in DVAX until the price breaks above last week's high, $3.83. Were I to open a position, I would buy shares and squirrel them away in my hope chest, rather than trading options.
Disclaimer
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.
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