CHART REVIEW – UPDATE ON SIRTEX.

This blog reviewed the ASX listed stock Sirtex (SRX) on the 15/1/2014.

https://technicality.me/2014/01/15/sirtex-succeeds/

At that time this stock was in full flight, propelled by strong momentum that appeared at that time to be starting to falter.

A dramatic fall from grace this past trading week, from $39 to just under $15 prompted me to go back, and review what I had written a year ago.  Were my comments reasonable? Would there have been a better way of managing a long investment in Sirtex with the benefit of hindsight?.

From my post a year ago:

Over-view of Sirtex

Although Sirtex Medical Limited is in the Biotechnology sector, it is not your usual biotech stock relying on venture capital for survival. It has successfully developed to become a profitable global company with 178 full-time staff in 19 countries, and is looking to expand production in the US and in Europe. It is now regarded as a Life-science stock.

It markets a single product for delivering radiotherapy to cancerous tumours in the liver, whether primary liver cancer, or secondary deposits from colon or other primary site.

Since 2005 Gilman Wong has been the CEO and under his leadership the company has enjoyed remarkable progress with the share-price jumping 24% in the last few days to reach an all-time high of $14.59. In 2012 he was Australia’s Executive of the Year.

 

This is a monthly candlestick chart of SRX from January 2014.

In full flight!

In full flight!

 

 

 

 

 

 

 

 

 

 

Observations:

The share-price remains in an uptrend, but momentum has slowed. The higher prices were associated with a crescendo-like increase in volume.

The chart appearances should be monitored closely in the next few months.  A failure to make  another higher high could create a head and shoulder pattern, or a double or triple top that might herald a change in trend. More likely is a resumption in upward trending, but with diminished momentum.

Suggestions:

 

It is sensible for institutional investors to seek to reduce risk  now when the shares are fully priced. Retail investors buying now are buying into a strong company that analysts expect could outperform in the next year or two.  They can expect to receive increasing dividend payments, and most likely will realize some capital gain. They should be mindful however that they are entering a mature trend, and need to be on the watch for technical evidence of trend reversal.

 

Up-date March 2015

The precipitous fall of the share-price this week was caused by negative results of a clinical trial showing no advantage from using the radioactive micro-spheres over conventional chemotherapy for  colorectal cancer I understand. The efficacy of the Sirtex product for liver cancer is not in question, and is continuing to be profitable.

TA observations of last four trading days.

 

Share-price falls off a cliff!!

Share-price falls off a cliff!!

From a TA viewpoint it is often a guide what to do by noting the points of short-term trend reversals. You may well ask why these inflection points on a chart are significant. The answer I think is because they provide an insight into trader thinking about the share price. After the initial fall, at $15 sufficient traders thought the shares had been over-sold to arrest the fall.  After the rally, there were no traders willing to risk paying more than $23 (the highest point of the rebound) a share for fear of paying too much. These limits might well define the boundaries of a future trading range, if traders remained undecided about which way to jump.

The story of the past four trading days:

  • March 17, the day of the announcement, there was an enormous gap lower at the open and in trading the s.p. made a low of $14.80, with support at $15.
  • March 18 saw a strong rebound, but the high of intra-day trading could not be sustained and the price at the close was $20.95
  • the March 19 candlestick was a Doji with open and close around the $21.90 mark. This reflects trader uncertainty, and hints at the possibility of a change in trend.
  • March 20, concluding an eventful week, was a small range day, ending lower at $21.49. Being lower suggests that a high has formed.

Will the share-price advance or decline in the coming few weeks? Observations to make in monitoring the share-price:

  • To continue the rebound, trading this coming week should surpass the last high at $23.
  • Be cautious about being a buyer if the share price retreats further and breaks below the $20 level.
  • If it continues to fall, and especially if it breaks support at $15, it would suggest a down trend was emerging by forming a lower low.
  • If a lower low was formed, one would then look to see whether the last high at $23 could be exceeded, or not.
  • A likely alternative would be for the share-price to transition into a trading range possibly between $15 and $23.

Because of the uncertainty, retail share-holders might be wise to avoid taking a position in SRX until the present volatility settles.

 

Options for managing Momentum

A year ago the long-term picture suggested that the long-term uptrend  was maturing, with declining momentum, but was still intact. I suggested investors with long positions should check the share-price movements for trend reversal.

As so often happens, the decline comes when least expected, when momentum is greatest, and so suddenly (gapping at the open) that there is no opportunity for shareholders to exit. To exit a year ago would have foregone nearly a threefold increase in the share-price

The management options as I see them are:

  1. To exit when the trend has created an over-bought scenario, and momentum is slowing, foregoing perhaps the best part of the share movement.
  2. To wait until there is unequivocal evidence of trend change and possibly miss the stop/loss exit position if the shares are dumped. I like to use a chart showing multiple moving averages to avoid exiting unnecessarily on whip-sawing share-price fluctuations.
  3. To exit on a rebound, at a better price.
  4. To adopt a hold and wait strategy, hoping for fortunes to stabilize and improve.

I chose not to invest in Sirtex because I thought erroneously that the trend was nearing maturity, it was a speculative biotech stock, and I had insufficient capital.

Were I holding shares, I would exit on a rebound, once the share-price entered a downtrend.



Categories: Chart Analyses, Company review, Technical Analysis

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