When A Setup Smells Fishy…
American Pharmaceutical Partners
[APPX|APPX] is a company with tremendous fundamentals and solid
relative strength. After a strong price move from July to early November, APPX
began consolidating. Over the next two-and-a-half months, it formed a somewhat
odd-looking base that it broke out of near the end of January. This breakout
didn’t take, though.
Jan. 31 was the first day that this stock
showed signs of trouble, as it experienced a large distribution day. This
reversal was confirmed the next day with more distribution. The stock then
spent the next few weeks moving sideways. This sideways consolidation may have
convinced traders who were still long the stock to give it some more
time. Many traders who sold out may have kept it on their watchlist thinking
they’d give it another shot if the opportunity arose.
What I’ve noticed over the last two days are
some major technical signals that indicate to me that trying to buy this stock
anytime soon is a very dangerous proposition, regardless of the fundamentals.
Within the first 10 minutes of trading yesterday, APPX pierced $22.00 for the
first time in over a month. It also shot through its 50-day moving average at
about $21.25. This is nothing unusual. Stocks break down every day —
especially in this market. It’s what happened in the last 10 minutes of
trading yesterday and the first 10 minutes of trading today that is so
interesting and suspicious.
Right before the close yesterday, APPX had a huge run-up
on MASSIVE volume. In fact, in the last 10
minutes of trading yesterday, it did over 40% of a normal day’s volume (based
on the 50-day moving average). This helped land it on Chris Tyler’s
Nightly Daytraders report as a high RS issue with a volume surge in the
last hour.
APPX announced earnings this morning.
Guess what happened?
Earnings were up over 200% and they also beat estimates. Do you think maybe
someone knew that was going to happen when they were buying at 3:50 pm
yesterday?
So the stock gaps up about 4.5% this morning…and in the first 10 minutes of
trading, 324,000 shares exchanged hands. That is about 36% more shares than
were traded in the last ten minutes of trading yesterday, and well over 50% of
a normal day’s volume. Guess who was doing the selling? Smells like a nice,
quick, easy profit for someone in the know, to me.
Looking further, if you didn’t sell in the first 10 minutes today, then you
didn’t sell at a premium over yesterday’s close. In fact, after the gap up,
the stock closed down nearly 17% from its opening price. So what does all this
mean?
-
Daytraders who checked out
Chris’s report last night may have had APPX as a potential buy candidate
going into this morning. The big gap opening would have prevented them from
entering long, thereby keeping them out of trouble. The truly agile
daytrader (in mind as well as execution speed) would have seen a trap door
or news reversal setup and may have shorted APPX as it broke below
yesterday’s high (or close). If you did this, congratulations…and thank
Chris. -
Intermediate term traders who may still have been
considering this stock as a long candidate should no longer be thinking
that. We’ve seen obvious manipulation, as well as a huge sell off after a
positive earnings announcement. This is a flashing red warning sign
screaming “Something is wrong here!â€
Something smells fishy and it ain’t fish. I would
consider a stock like this a much better short candidate at this point than
long candidate. In fact, I wouldn’t consider it a long candidate at all.
Traders of all time frames should learn to recognize price action like this,
so that they may avoid trouble and preserve capital. Aggressive and
experienced traders may be able to profit from situations like this one by
recognizing and acting on them quickly, but the most important thing is that
you remain out of harm’s way. If something seems wrong, it probably is.
I may be wrong about this stock. It might start rising
tomorrow, and go up 100% in the next three weeks, but I won’t be in it. Not
with the things I’ve seen the last two days.
Feel free to email me if you have any questions.
Good Trading,
Rob Hanna
P.S. The last two days have done nothing to change my mind about this market. Still choppy. Still a somewhat negative bias.