What a nasty week! The FDA approved us to treat IBS-C to go along with our treatment of CIC. Wow, what monster news right? Mmmm… yeah, but no! We open about $2.80, go straight to $2.25 and end at $2.47. Bloody hell! WTF was that? Certainly a bad shit day when you get good shit news can’t be good… right? We need to break out the pen and paper and start drafting our suicide notes and start contemplating how we’ll do it.. right? I mean Yikes!!!
Not so fast Doctor Doom. We need to step back and look at this on a more macro level than micro. First of all, that FDA news wasn’t news at all, it wasn’t a catalyst for anything. Anyone who has been around knew it was going to happen, no surprises here. All that was, was a good hype build up and then dump fest for the swing and day traders. If you are long and are now freaking out because you got caught up in all that non-sense, it might be time to punch yourself in the face.
From a fundamental stand point, nothing happened. At least nothing we didn’t already know. From a technical stand point, still nothing happened, which I will show you in a minute. So yeah, it wasn’t pretty on the surface, but yesterday’s action was pretty ho hum and shouldn’t have come as a surprise. In fact, because of that ugly day, I’m sitting here writing this and listening to one of my favs, Frédéric François Chopin and being super chill. Hell, yesterday was so ugly and bad I even added to my position.
Am I right to be so relaxed and nonchalant after such a day? Well, if not, it wouldn’t be the first time I was wrong, but I have a simple reasons for being so. I mentioned that, technically, nothing changed. See the chart below:
There is a basic up channel that we formed off the low of $1.68 and have been trading in since. The candle pointed out with the yellow arrow was yesterday… DUH. That was the big nasty, but not really. It was really just the big volatility. You had to know it was going to be a roller coaster day, and if you didn’t, punch yourself in the face again.
So what really happened? Well, we opened above the channel resistance, went straight down to channel support and bounced off that to end in the middle of the channel. So, again, what really happened yesterday? Nothing! All we did was the typical higher high to higher low cycle that you hope to see in continuing the up trend. The only thing different than the norm was that we did a week or two’s work in one day.
I saw yesterday as a sign, a good sign, an opportunity. I added to my position right at the close, once I knew it was going to close over that channel support. With the amount of volume yesterday and the overwhelming “OMG get me the gun, or at least a tissue” cry baby sentiment on the boards, you’d think we would have just blown right past the channel support, but nope, nada, nix. It held like a champ and screamed “buy me buy me”.
Today wasn’t as nice as I would have liked to seen, but again, no harm done. We are still in the channel and didn’t make a lower low. I mentioned back in early December that the closer we get to $3.00 the harder it would be to move and that the volatility would make you queasy, and there you have it. So, I’m growing more positive and liking what I see, but does that mean we are out of the woods? Hell no it don’t! We do have a little bit of concern on the weekly shown below:
So here we are showing that same channel on the weekly. This week ended badly. That candle is what I’d call a shooting star. Not a good thing to see in an uptrend. Does it mean we are doomed? Nope, for two reasons. First, lets put last week it in perspective. No doubt, a shit ton of selling, but unexpected?… nah. Last week was a bit of an anomaly in the context of previous weeks because of the FDA thingy. So, from a pure technical stand point, that candle is U G L Y, but when you add the fundamental events of last week to it, it really went down as anticipated.
I guess I should mention, a shooting star is when you get a candle in an uptrend where there’s that big long upper wick and a small spread at the bottom. It usually indicates exhaustion from the buyers and sellers took over in a big way, which leads to a reversal of the underlying up trend. But again, I’m not so sure last weeks selling was because of buying exhaustion, it was more because of that major sell the news swing trader mentality.
The second reason I’m not throwing in the towel due to the weekly, is that the shooting star needs to be confirmed first. Actually, that goes for all candles and patterns. Acknowledging them just puts you on notice for a confirmation before taking action. If we close next week below the low of this week, then it may be time to get the gun.
Here is another little tidbit of technical mumbo jumbo. Above we are looking at the daily again, but the weekly is identical. That orange arrow that cuts through the channel shows a larger down trend resistance that we’ve been in since Cro-Magnon man roamed the Earth. Also that cyan line is the 40 day moving average. Most people use the 50 and 200, I use the 40 and 120. Why? Good question. I read a book and the author used those time frames. I was testing them and they stuck. The key with moving averages isn’t so much what time frames you use, but that you use those same time frames consistently. Don’t go adjusting them until the show you what you want to see.
Anyway, whenever you break out of a point of resistance, as we did from that down trend resistance, it’s not unusual to go back and retest that resistance. If it passes, then that resistance becomes new support. I mention that because it no coincidence that the broken resistance line, channel support and 40 day MA are all converging in that same spot I grayed out. We are going in for a big test, one with a lot of significant support under it. So, I think it is more likely to pass than not and our up channel will resume and get stronger because of it. However, if it fails… yeah, definitely get that gun.
With all those technicals coming to a head, wouldn’t you know it, we have some fundamentals coming up that coincide with the timing of the technical drama. Next week we should know how they will access the next 100 million tranche. I have been expecting more dilution, but I may be reconsidering that. They need to have 128 million in cash by Wednesday in order to get another 100 million from the loan. It seems to me if they knew they’d be short, they would have already done it to make sure they had it and set the closing day of the offering for January 31. But, that’s just guessing. If they do have the cash to get the additional loan and no dilution is needed, I’m even more confident this technical retest will pass and the uptrend will indeed continue and get stronger as the technical setup implies.
So, as always, next week will be crucial and I put my money where my mouth is. I may not always be right, but I always have a plan. Get off the message boards and use your own brain. Do your own thinking, otherwise you’ll just be someone else’s pet.
Good luck and take it sleazy from the big EZ!