ENDP Watch

A news surprise on Endo Pharmaceuticals Holdings Inc. (ENDP) prompted a 9.6% upward gap at the open. ENDP is one of my watchlist stocks (and also, one of my holdings -- hurray!).

	trend	sto	sto zone	pps	psar	macd	macd trend	ma20	ma200
ENDP $33.51

The news was an agreement for Endo to privately-held Qualitest Pharmaceuticals for $1.2 billion. The gap put the price at levels not seen since July 2007 and brought ENDP within reach of its all-time high of $35.85.

Often, a gap like this will throw signals into reverse, but ENDP was already positioned in bull phase across the board, including a nicely rising trend. I analyzed those signals in a Sept. 23 post.

For the happy trader who held ENDP, the questions are: Exit now? Exit later? Exit when?

Today's price is trading 2.2% below the day's high, but also 1.5% above the day's low, with the price mainly within pennies of the open. Clearly, the chart shows profit takers and getting-in-laters trying to strike a balance.

The market's more considered assessment of the deal will come later.

The various technical signals do little good in trying to form an exit strategy. They work best when price movements are smooth, and gaps of this magnitude distort the signals for weeks to come.

So the prudent trader is thrown back on the oldest of technical tools: Support, resistance and trend.

A break below today's gap-day low, $33.03 so far, would be an exit signal. A pattern of lower highs and lower lows in the next few days would be a stronger exit signals. A failure to break above today's high -- $34.26 -- would be a cautionary sign.

A break above today's high, and above the all time high, would of course be bullish signals.

Reversal Levels

• $35.85, +7.0% (all-time high)
• $34.26, +2.2% (gap-day high)
• $33.51 <== You are here.
• $33.03, -1.4% (gap-day low)

Disclaimer

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.

Abbreviations:

• pps - Person's Proprietary Signal.
• psar - Parabolic Stop and Reverse
• ma20 - 20-day moving average
• ma200 - 200-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.
• sto: green for bull, red for bear.
• sto zone: green for overbought (80+), red for oversold (20-), yellow for neutral zone
• psar, pps, macd: green for bull mode, red for bear.
• macd trend: green for rising, yellow for sideways, red for falling.
neutral.
• ma20, ma200: green for above the average by more than 1%, red for below the average by more than 1%, yellow for within 1% either side of the average.