Tim Bovee, Private Trader: Monday's Prospects: Round 2

Saturday, August 9, 2014

Monday's Prospects: Round 2

Although no symbols from my regular list -- as shortened for travel -- made it past the first round of analysis, one symbol on my supplemental list of innovative companies. This is a short list of companies that I find interesting. Basically, they're story stocks, and who doesn't like a good story?

See the full run-down on my first wave of analysis in "Monday's Prospects".

The company from the Innovators list is Medivation (MDVN), and it came to notice by appearing on the Fast Company 2014 list of most innovative companies. The MDVN article, by Sarika Bansal, may be read here.

The chart is bullish, but in since February has seen a decline and then a fresh rise that, as of Friday's close, had brought the price to within 4.8% of the peak.

I see three possible counts just in a first first approximate of framing using Elliott wave analysis:

1) The correction from the February peak is complete and wave 1 to the upside of a fresh uptrend has begun. A confirmed break above the $88.20 peak will suggest this count is correct, although the second count, below, can't be ruled out without a substantial rise past the peak.

2) The correction continues with wave B to the upside. In this scenario, I suspect the price to reverse downward in wave C below the peak, although it might well exceed the peak before reversing.

3) The February peak is the end of the uptrend, and a new downtrend has begun, with the present rise being wave 2 to the upside within that declining trend. Under this scenario, the rise must reverse below the February peak, and there is substantial potential to the downside.

Click on chart to enlarge.

MDVN 14 years monthly bars (left), 7 months daily bars (right)

Zacks Investment Research, the service I use to short-cut my fundamental analysis, ranks MDVN as neutral. The company has lost money in nine out of the last 12 quarters.

Well, it is in the nature of innovative companies that their promise is in the future.

It will take a full analysis to determine whether MDVN is worth a play. I'm considering it for a bull play under my longer-term rules. The stock has adequate options liquidity for hedging.

The fact that Friday's the breakout came immediately after an earnings announcement -- a profitable quarter for a change -- adds a wrinkle. Under my rules, Aug. 11 is Reset Day and the stock must close above Friday's high, $84.30, in order to confirm the breakout. I'll add MDVN to my Watchlist with that level as the trigger and revisit it after Monday's trading.

If it confirms the bull signal, then I'll write a full analysis.

-- Tim Bovee, Fukuoka, Japan, Aug. 8, 2014 New York time

References

While traveling, I'm performing my analysis on a smaller universe of symbols and on an altered schedule. See "August Schedule" for details.

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

My chart assessments are based on Elliott wave analysis, which 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.

Disclaimer

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.