Supply Swamps Immunex Demand
As an intermediate-term momentum
trader, I fish in the waters where the best companies swim. High earnings
growth, high return on equity, growing sales, exciting products and services, a great story, etc.
But after all is said and done, a
stock’s share price boils down to the battle of supply and demand. And when
supply outstrips demand, price must fall.
Immunex
(
IMNX |
Quote |
Chart |
News |
PowerRating) provides a case in
point. The stock Wednesday dropped 6 3/4 to 40 5/16 on triple average volume.
The Seattle-based company is a biotech that also enjoys strong earnings growth.
The company makes therapeutic products for the treatment of cancer, infectious
disease and immune system disorders. All good reasons to create demand for the
stock.
But a few days ago, the company
made two announcements that portend a big increase in supply of stock coming to
market. On Aug. 9, Immunex said that it plans to sell up to 70 million
shares of its stock, while American Home Products
(
AHP |
Quote |
Chart |
News |
PowerRating), owner of more than
half the company’s shares, also would sell a substantial portion of its
stake.
The stock has exhibited two
sell-offs since that supply overhang hit the news wires, the most recent coming on Wednesday. (See black arrows in chart.)
This is a good example of
how news sometimes is not immediately discounted by the market. Sellers cannot
unload such a hefty pile of stock in one fell swoop. As you can see, the stock
fell in two stages, first one Aug. 10, then again today. We also don’t know how
much of the selling came from Immunex and American Home Products. Other
institutions could have dumped their shares on these days as well. So there’s no
assurance the Immunex is out of the woods yet!
Note also that Immunex
shares closed near the low Wednesday’s trading range. No one with big pockets
stepped in to snap up shares near the day’s bottom. For more on
identifying these institutional bargain hunters, check out
my lesson, Using
Weekly Charts To Spot Accumulation.