Tuesday, November 9, 2010

ENDP Watch

Endo Pharmaceuticals Holdings Inc. (ENDP), which specializes in pain-management drugs, moved to bull phase on Person's Proprietary Signal, six trading days after better-than-expected earnings triggered a price slide and move to bear phase.

The on-balance volume has been moving sideways since mid-October, and so the signal has not yet been confirmed.

ppspsarmacd obvh-a trend ma20ma50ma200
ENDP $36.59

On-balance volume is 3.6 million shares short of the 34.9 million shares needed to set the higher high needed to confirm the signal.

The fundamentals continue to make ENDP an attractive play, with return on equity of 21%, a very high rate of institutional ownership, and accelerating growth in annual sales.

On the downside, the latest trailing 12-month revenues have grown by less than they did in 2009. It's still growth, but it's a deceleration, and perhaps that accounts in part for the market's negative reaction to the earnings report.

The upside target on the daily Person's chart is only 2% plus change above the current price. That's not a compelling reward for the risk.

Person's Table
ppspps openupper pivotlower pivot
ENDP $36.59 $36.28 nov9 $37.37 +2.1% $33.00 -9.8%

The stock reached an alltime high of $38.20 on Oct. 25, five days before the earnings release. The price today moved above the 20-day moving average after tracking it closely for five trading days.

Reversal Levels
  • $38.20, +4.4% (all-time high)
  • $36.59 --- You are here.
  • $36.02, -1.6% (20-day moving average)
  • $34.48, -5.8% (earnings-day low)

The Bollinger bands have been narrowing, often a signal that a price move is at hand, and the price today broke above the midline.

Bottom line: I won't take this trade without confirmation from on-balance volume. And there's no pressing deadline to take it.

Earnings were announced Nov. 1 and won't be an issue until February, so there's little financial calendar motivation for a price move.

The stock doesn't pay dividends, so there's no income motivation to get in.

It is a pharmaceutical stock, and so is prone to policy shock from the federal regulators, a good argument for limiting exposure to this issue.

ENDP remains on my Watchlist, and I shall revisit it once the on-balance volume moves to 34.9 million shares.

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.

  • h-a trend - Heikin-Ashi trend.
  • obv - On-Balance Volume.
  • pps - Person's Proprietary Signal.
  • psar - Parabolic Stop and Reverse
  • ma20 - 20-day moving average
  • ma50 - 50-day moving average
  • ma200 - 200-day moving average
  • macd - Moving Average Convergence-Divergence

About the glance: The colors indicate the state of each signal.
  • Signal Section:
    • pps, psar, macd: green for bull mode, red for bear.
  • Confirmation Section:
    • obv: green for uptrending, red for downtrending.
    • h-a trend: green for uptrending, red for downtrending.
  • Environment Section:
    • ma20, ma50, ma200: green for above the average, red for below the average.

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