Why did AMRN go up 200% plus in a year?
1. This stock has neglect from a chart perspective before making the bulk of its move. The stock bottomed under $1 in early 2009, just like every other stock so far. After rallying off the lows it formed a one-year base and broke out to start its uptrend in early 2010.
2. Another part of neglect – fund ownership – wasn’t as bad for this stock as the other stocks so far. Funds owning the stock were 12 (3/2010), 18 (6/2010), 23 (9/2010), and 42 (12/2010). So there was some fund ownership there. But notice the jump in funds between March and September; it doubled. This coincided with a 300% rally in the stock from $1 to $3 in 6 months.
3. Earnings growth and fundamentals don’t appear to have mattered in this case; the company has many years of losses and projects a loss in 2011. IBD earnings rating is 48 in January 2011.
4. This stock had float of 60 million. So far each stock studied was under 100 million.
5. Each stock analyzed so far has been low priced at the beginning of its move and made it through the $4-$6 range during the big leg of the move. AMRN did the same, going from $3 to $9.66 in 2 months. Just before that move, the stock broke out of its year-long base, based again for 6 months, then tripled. This pattern of bottoming in neglect, breaking out, basing for a long time (months), and then breaking out for a large move seems to be consistent so far.
6. The stock’s IBD sector rating is 49. But this sector is different from others; usually company specific news related to testing of drugs, drug patents, regulatory approvals, etc. But other stocks in the ethical drugs group had good relative strength: JAZZ, QCOR, VRX to name a few.
7. There was definitely a news catalyst for AMRN. The AMR101 cardiovascular drug testing news releases directly coincide with the rally. This drug is their lead candidate for the future and has had a high positive news flow.
Personally I try not to trade these stocks dependent on drug trials, biotech and such. Unless you are a cardiovascular expert I’m not sure how one could predict drug trial results. Many of those announcements result in big gaps, like this stock had in November. This stock’s big move appears mostly based on news catalyst. But neglect was the main common factor among this stock and the other big gainers so far.
Other notes:
- The company’s focus is on cardiovascular disease. Its leading candidate is a drug called AMR101, which is designed to reduce triglycerides. Phase 3 positive results were announced in November 2010 with the stock near $3.50 a share. The stock expects more news on trials in Q2 2011.
- The stock’s IBD rating was 75 just after the Dec 2010 move. This was mainly due to a spike in its RS rating.
- The stock declined for about 2 years from early 2007 to early 2009 before the very bottom of its move. It then rallied hard off the bottom in early 2009, but needed another year of downward drifting range action before breaking out in the first half of 2010 through the $2 area.
- Short interest spiked in November and some reports stated that the short squeeze was on in December. Shorts are now 8% of float (12/31/2010). Down slightly from just after the breakout in Nov 2010.
- The stock IPO in 1993.
- The stock had 3 EP days in November 2010 that ultimately took the stock from $3 to $9.66. Both days were breakouts:
o 11/10/2010 – The stock had formed a tightening, low volume downward drifting range near recent highs for about 2 weeks and rested on its 50-day moving average going into this breakout on an EP day. The news catalyst was that the company was announcing its Phase 3 results for AMR101 in 2010, instead of 2011. The stock rose 9% on high volume. The stock rallied from $3 to $3.80 in 5 days before forming a tight downward drifting range for about 7 days, coming to rest at $3.50 area.
o 11/29/2010 – The Company announced positive Phase 3 results for AMR101 and the stock gaps up on a big white candle. The breakout was on around $240M dollar volume. Stock opened up 49% and finished the day up 65%. As can happen after gap moves like this the stock went sideways in the breakout day range for about 10 days.
o 12/15/2010 – On no news, the stock rose 6% (after being up over 12% intraday). This breakout was on much lower volume than the previous breakout, but the stock still managed to rally 32% in about 4 days before drifting upward to 52-week highs in light action. The stock stalled after a total rally of 63% from this breakout.
o 1/6/2011 – The stock tried to break out again, and it rallied 10% to new highs at 9.66 on decent volume. But the breakout retraced itself the following week.
- The breakouts were fairly clean on this stock, but the large gap day would have been tough to enter on a 49% opening gap. But break through highs after pullback provided decent breakouts in mid December and January that stalled the move for now.
- The bases were in tight downward drifting price action, very orderly during the bulk of the large move.
- The stock’s trend intensity throughout the move was:
o April 2010 (before/after breakout): 127/129
o November 2010 (before/after breakouts): 106/127
o December 2010 (before/after breakout): 165/163
o January 2010 (before/after breakout): 172/171
- Note that the 300% part of the move started when the stock was at 106 TI. Subsequent breakouts were pretty high trend intensity both before and after the breakout.
As usual, any comments welcome.
Hi
ReplyDeleteNice blog you set up. So looks like we need a scan for stocks under 5 that have based for 6 months to a year and have a float under 60 million?
Thanks
Shah
So neglect and low fund ownership can be one of the criteria that can be used to select stocks. Also I would assume even its a low price stocks it has decent daily trading volume.
ReplyDeleteBH nice job.
Thanks - we'll see. Want to see rest of the samples first. I am very busy this week but am probably going to tabulate some of the results and link to it from here. Stay tuned.
ReplyDelete