Thursday, March 27, 2014

MNKD: A head fake in the making

My analysis of Mannkind Corp. (MNKD) will be far briefer than I had anticipated. Headquartered in Valencia, California, Mannkind is a development phase biophamaceutical company focusing on treatments for diabetes and cancer.

MNKD gave a bear signal on Wednesday and confirmed in in Thursday's trading, but the chart shows that the symbol is poised for a massive head fake that will carry the price at least 9% above today's opening, and perhaps much higher.

The Chart

MNKD has been in a downtrend for a very long time, since September 2004 when it peaked at $124.31.

The Elliott wave count shows that the decline has traded out five waves to the downside, ending with wave 5 {+4} at $1.57 on May 18, 2012.

The next act is an upward correction in three waves that will take back a portion of the entire decline from 2004.

Click on chart to enlarge.
MNKD 10 years weekly bars (left), 2 years daily bars (right)
So far MNKD has been acting as though an upward correction is underway, having completed the 1st and possibly the 2nd subwaves of an A wave to the upside.

By that count, wave 3 {+3} must move higher than the end of wave 1 {+3}, which was $8.70 on Aug. 14, 2013, a level 9.2% above today's opening price.

Wave 2 has retraced 50% of the rise from May 2012. That's not an uncommon end point for 2nd waves. The next major stopping point in the Fibonacci retracement schema is the 61.8% level, or $4.29, which is 20.6% below today's opening price.

MNKD's price been stalled at the 50% level since October 2013, with two forays down that came close to or touched the 61.8% retracement, suggesting that the 50% level is likely to hold and the next move will be wave 3 {+3} to the upside.

The most recent prior reversal level -- support -- is at $4.86 and a break below that would suggest that MNKD is making another attempt at 61.8%, with no guarantee that it would succeed.

 The chart favors a somewhat bullish view of MNKD's prospects, although some further downside work may be required before wave 3 {+3} makes its move.

By sending a bear signal in chart that is bullish, although not obviously so, MNKD has executed a classic head fake and a potential whipsaw. As a student of charts, I find it to be quite beautiful.

Decision for My Account

I don't intend to open a bear position in MNKD.


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

I use the number 68.2% in using applied volatility to calculate the expected trading range. 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. The principal practitioner 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

Several web sites summarize Elliott wave theory, among them, Investopedia, StockCharts and Wikipedia.

See my post "Chart Analysis: Nomenclature" for an explanation of my method for labeling waves on the chart.

By preference I place my trades in the last half hour before the closing bell in New York. See my essay "When is the best time to trade" for a discussion of the practice.

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 decisions for his or her own account, and take responsibility for the consequences.

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