Monday, April 29, 2013

TSRO: Dr. No

Tesaro Inc. (TSRO) broke above its 20-day price channel on Friday following announcement that it had lost money in the most recent quarter. No surprise there. Tesaro has yet to earn a profit.

Even so, the price jumped 13.2%, close to close, and today continued to trade still higher, breaking through the channel boundary, $27.36, created by Friday's rise and thereby confirming the breakout under my rules that apply to earnings announcements.

Under those rules, I don't trade a breakout on the first trading day following an earnings announcement, and trade the second trading day post-announcement only if the breakout is confirmed by the stock trading beyond the new, post-announcement boundary.

Under my normal, non-earnings rules, the confirmation level is the boundary created prior to the breakout day.

Three of the six symbols that survived my initial screening were earnings breakouts that failed the more stringent confirmation test.

TSRO is a relatively new symbol; it began trading in June 2012, doing the traditional post-IPO slide down to $11.05 in August 2012, before bouncing back into the uptrend that remains in force today. It hit an all-time high of $30.65 on Monday before retracing to a significant degree, and indeed as I write this analysis it has moved below the breakout level, potentially negating the bull-signal confirmation.

This is the third upside breakout in TSRO's lifetime, and all have come during the uptrend. The two completed breakouts were profitable, yielding on average 14.5% each.

Tesaro, headquartered in Waltham, Massachusetts, develops pharmaceuticals for cancer patients. That fact alone is reason for the trader to treat TSRO as speculative, for new drugs are hostage to research results and regulator oversight, both of them factors over which Tesaro's management has limited control.

The rewards of such drug development can be great, and the losses devastating. And no stock chart can give even a hint as to whether rewards or losses lie beyond the horizon.

TSRO is followed by a handful of analysts that are mainly positive about the company's prospects.

And "prospects" is the important word when considering Tesaro, for the good days, if any, all lie ahead. Return on equity is a negative 71%.

The four quarters for which earnings have been reported all show NO profits ever. It's losses all the way.  The most recent lost less than the quarter before, but more than the one before that. Tesaro has produced negative earnings surprises in three out of the four quarters, and only one positive surprise.

Institutions own 81% of shares. At this point, Tesaro's business is all development; it has NO sales.

TSRO on average trades 163,000 shares a day. There are NO options associated with the stock. Any bull play would need to be as long shares, with NO leverage and NO hedging ability.

The fair-prize zone on today's 30-minute chart runs from $27.76 to $29.38. With four hours left before the closing bell, TSRO is trading near the bottom of the zone after having begun the day at the zone's top.

Tesaro next publishes earnings on Aug. 5.

Decision for my account: No profits. No sales. No options. No brainer! No way am I taking this bull trade. Also, under my rules, I can't trade it unless the price is above $28.36, and it is at present below that level.

TSRO was the bad best of a bad lot. The other two survivors of my phase 2 analysis were MCRI, which is stuck in a long-term sideways trend, and the over-the-counter symbol TCEHY, which has entered a downtrend (lower low) after a long uptrend.


My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.

At several points in my analysis I use the number 68.2%. This comes from statistics and refers to the one standard deviation boundaries, which are expected to contain 68.2% of whatever is being studied. Putting it another way, given an item (a trade or whatever), there is a 68.2% chance that it will appear within those boundaries.

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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