Friday, August 23, 2013

CLDX: A biotech bull signal

Celldex Therapeutics Inc. (CLDX) broke above its 20-day price channel on Thursday and confirmed the bull signal by trading above the channel today.

The breakout followed a six-week sideways trend and brought the price to a new all-time high, $23.92. Today's trading has remained below the high but above the breakout level.

My problem with the CLDX chart is that it shows signs of an uptrend that has exhausted its
CLDX 90 days 2-hour bars

The Elliott wave count is a muddy, but it arguably shows five waves in an uptrend from $11.40 on May 10, the current leg in an uptrend that has been in force since October 2011.

That longer uptrend, that began from $2.05, has also arguably seen five waves in the uptrend.

While the Elliott wave count isn't a deal killer, it sounds a strong note of caution to expect a reversal to the downside soon.

This the the second breakout to the upside during the near-term leg up from last May. The completed bull signal yielded 30% over 43 days.

The full uptrend from October 2011 has seen seven completed bull signals. Four were successful, yielding on average 43% over 51 days. Three were unsuccessful, losing 6.6% over 16 days.

CLDX was one of four symbols that survived initial screening last night. (See "Friday's Prospects".)

STM failed confirmation, and BASFY's bull signal was at variance with a bearish rating from Zacks. (Such a variance isn't necessarily a deal killer, but I tend to take Zacks' assessments seriously.)

QMED has low to no open interest on its options, leaving the more liquid CLDX as my preferred choice.

Celldex Therapeutics, based in Needham, Massachusetts, develops therapies for the treatment of cancer and other diseases.

The analysts that follow it all love it, collectively giving it a 100% enthusiasm rating.

However, Celldex is a development company. It is a bet that someday it will hit the jackpot and earn great profits. Because it has no profits today.

The company has reported losses for the last 12 quarters, with no trend of lower or greater losses. It has surprised to the downside eight times, and to the upside, three times.

Return on equity is a negative 49%. The company carries no long-term debt.

Institutions own 79% of shares and the price has been bid up to a stunning level. It takes $203.19 in shares (not a typo) to control a dollar in sales.

CLDX on average trades 1.7 million shares a day, sufficient to support a moderate selection of option strike prices with open interest running to the two- and three-figure range. The front-month at-the-money bid/ask spread is 17%, a bit higher than I like.

Implied volatility is quite high, at 63%. It has been rising since Aug. 13.

Options are pricing in confidence that 68.2% of trades will fall between $19 and $27.40 over the next month, for a potential gain or loss of 18.1%, and between $21.18 and $25.22 over the next week.

Trading in option contracts today is running quite high, with both calls and puts at 3-1/2 times their five-day average volume.

The fair-price zone on today's 30-minute chart runs from $22.95 to $23.29, encompassing 68.2% of transactions surrounding the most-traded price, $23.19. The stock has been trading within the zone all day, with about three hours left in the trading day.

Celldex Therapeutics next publishes earnings on Nov. 4.

Decision for my account: This is a complex decision. The chart shows the stock having broken out to a new higher high, a bullish sign. And the odds of a winning bull trade are quite good.

Yet, the Elliott wave analysis suggests that the bullish signs may be yesterday's news, that the rise has come to an end.

The financials reinforce the idea that CLDX is a play based on hope, and that a lot of the hope has already been built into the price -- a 200:1 price to sales ratio!

And the fact that options volume today is equally high for both calls and puts suggests there's a lot of "greater fool theory" churning going on, also known as "musical chairs".

I prefer more measured trades. I'm all for hope, but only when my hopes are in advance of the pack's.

I'm passing on CLDX and won't be opening a bull position.


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.

Elliott wave analysis tracks patterns in price movements. StockCharts has a good explainer. The principal practioner of Elliott wave analysis is Robert Prechter at Elliott Wave International. His book, Elliott Wave Principle, is a must-read for people interested in this form of analysis, as is his most recent publication, Visual Guide to Elliott Wave Trading

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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