Friday, August 6, 2010

AFFY Watch

Pharmaceutical house Attymax Inc. (AFFY) in 2011 plans to file application for an anemia it has under development. Trading in the micro-cap stock has been anything but anemic that past few days, as volume has roared from below 500,000 to more than 3 million today, 6 million yesterday, on bullish technical signals.

AFFY $8.51

Person's Proprietary Signal (pps) showed bull phase yesterday, joining the parabolic sar, the macd and fast stochastic in a delirious round of happy talk.

After the company announced its planed drug filing, analysts responded with positive evaluations and the price, these two days, has moved up 31.5%

So, the move has already happened, and there's no point in even looking at this risky play -- right?

Not so much, actually. Pharmaceutical development companies, by their nature, are surprise plays. I like to look for a setup that tilts the surprise expectations one way or the other, and then make a move.

On June 21, AFFY gapped down from above $23 to below $9 after trials raised some heart concerns. The fact that the company plans to go ahead and seek approval for the drug means the company's scientists believe they've addressed the problem.

If they're right, then there's no reason the stock should again move up to the $20s or higher.

On the other hand, it's drug development company. There could be a negative surprise, and the floor drops out.

I'm saying that if I'm willing to play pharmadev, this is the sort of play that I like.

Longer term, AFFY had been on a rise from December 2008 up to May 2010, the month before the negative surprise. The price has set higher highs and higher lows in July and so far in August.

I'm going to skip the Person's chart analysis and the reversal levels. They're aren't particularly relevant on a research-driven stock like this.

Bottom line: For my account, I would be comfortable with a bull play on this stock, with two caveats: I would want to own shares, not options, so I wouldn't face expiration at an inconvenient time, and I would ensure that I sized the trade with the expectation that I could lose my entire position based on a negative news surprise.

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Tim Bovee, Private Trader tracks the 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.


  • psar - Parabolic Stop and Reverse
  • adx - Average Directional Index
  • pps - Person's Proprietary Signal
  • ma20 - 20-day moving average
  • macd - Moving Average Convergence-Divergence
  • sto - Fast Stochastic

About the glance: The colors indicate the state of each signal.

  • trend: Determined by the 5-day moving average, green for up, red for down, yellow for sideways
  • adx: orange for above 30-up, blue for 20-down, purple for in the middle. Red is most prone to whipsaws
  • psar, pps, macd: green for bull mode, red for bear
  • sto: green for overbought, red for oversold, yellow for the neutral zone.

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