ISIS: Technical Analysis Case Study
This is a follow up to my post, “ISIS Pharmaceuticals breaches long term support.” As many of you may know, posts from this blog are often (though not always) syndicated on SeekingAlpha.com. In the case of my previous post on ISIS, I caught significant flack from the SeekingAlpha community. Among other things, I was accused of not understanding how to invest in biotech and generally missing the point on Isis’ anti-sense technology. (For those interested, I actually posted on Isis’ business and fundamental value in a previous post.)
Well, I figure it’s time to post a follow up to my previous post. To recap, here is the chart I posted on October 5, 2009. This is a three-year weekly chart which I typically use to determine the intermediate/long term market trend driving the stock.
In this chart, ISIS’ stock has breached its 50-week moving average. Remember that breaching the 50-week moving average necessarily means that the stock has also fallen through its 200-day moving average (not displayed). To me, this means that, on a short term basis, market participants have lost conviction in ISIS’ stock. More worrisome to me than the interim breach of the 50-week moving average was the negative divergence in RSI during the stock’s previous uptrend as well as the lack of any clear areas of support before the $12 range. Coincidentally, the $12 support level defined by several previous lows as well as the prior interim high seen on the far left of the chart also coincides with the $12.12 defined by the 200-week moving average. As such, I made the call that “a retest of the 200-week moving average is not out of the question” and that there was “a potential 15-20% additional value at risk” on October 5, 2009.
Okay, now let’s look at how the stock has traded since my call.
In the month following my call, ISIS hit a daily closing low of $12.31/share, basically right at the 200-week moving average (which averaged upwards slightly since October 5, 2009).
Am I clairvoyant!?
No, of course not. In fact, I don’t even consider myself primarily a technical investor. I merely use it to guide my short term decisions. For those that write off technical analysis, however, I think this is a great example of just how it can be used to improve your investing. I wasn’t analyzing ISIS in hopes of timing my trades. I was merely trying to establish a disciplined stop-loss for a position that I hold. In the end, I did not buy back into ISIS, but instead allocated capital to BX on November 5, 2009. In the interim, I saved myself from holding ISIS and losing an additional 12% on my position.
The key to remember with technical analysis is that it does not stand in place of or in contrast with fundamental analysis. But, absent a market moving press release, it is a method of understanding how “Mr. Market’s” voting machine will vote during a discrete period of time. I know this seems like very carefully chosen wording, but there is no such thing as one strategy which works in all situations in investing. The key is to stick with what you know and have the tools necessary to analyze different opportunities. In the case of determining emotionless stop losses and profit maximizing entry points, I am a believer in technical analysis.
Full disclosure: Author is long shares of BX at the time of writing. No position in any other stock mentioned.
Arbitrage Opportunities in the Public Market
In my previous post on the Allied-Ares merger arbitrage opportunity, I introduced a topic which I realized I’ve never quite talked about here on The Curious Investor. As I intend this blog for both beginning investors and seasoned investors alike, here’s a run down on the concept of merger arbitrage.
What is arbitrage?
Rigorously speaking, arbitrage is the practice of taking advantage of a price differential between two markets which allows the arbitrageur, or person taking advantage of the arbitrage, to obtain a risk-less profit.
Technically speaking, an arbitrage refers to a situation …
Ares Allied Merger Arb Opportunity
In my prior post, “Allied Capital Goes from Value Trap to Deep Value,” I made the point that the Ares/Allied acquisition created a potentially interesting merger arbitrage opportunity. As astutely pointed out by commenter BeauZeau at Seeking Alpha, the merger arbitrage opportunity is not quite as large as I portrayed.
In a classic merger arbitrage, the investor ought to short the acquiror (ARCC) and buy the target (ALD). That is because, assuming that the deal closes, the target and acquiror shares are now representative of the same asset. Consequently, any price discrepancy between the …
Are Apple bulls exhausted?
I’ve written extensively about Apple this past year. And, not without reason. Investing in the stock has been a very fun ride ($89 – $200 in a little over 6 months). The Company whether it be delighting users with new products or frustrating users with its mismanagement of the iPhone app approval process has managed to stay in the headlines and, as a result, remains a plentiful mine for content. Because Apple has a contentious group of zealous fanboys, let me start with my Apple Investor Disclaimer and then get on with the post. This is specifically for mac …
ALD from value trap to deep value
For those that follow this blog, I once wrote about an asset class known as business development companies, particularly middle-market lending BDCs. These businesses typically concentrate on investing through the financing of middle-market private equity transactions. Over the last year, some have come under pressure as a result of government regulations over BDCs which require them to maintain certain asset coverage levels. As a result of the disjunction in the markets, mark-to-market mark downs on BDC portfolios resulted in some BDCs (most recognizably Allied Capital and American Capital) falling out …
Technical analysis is not clairvoyance
Been meaning to write this post for a while, but it seems that my patience has paid off as I have even more chart evidence to work with. And, that is the main point of this post. Technical analysis is not a means for predicting the future. That may seem paradoxical to those who have seen me use technical analysis to attempt to determine buy and sell points. If technical analysis isn’t for predicting the future, then how can it be useful?
What I mean by technical analysis isn’t meant for predicting is that rigorous technical analysis isn’t a means for …
