Comments on: CLVS Active Trade Schedule To Report Earnings

By: jegersmart

jegersmart — Fri, 24 Feb 2017 09:52:07 +0000

Just a quick comment on fundamentals versus technicals. Fundamental data is potentially endless and more importantly often subjective. That is to say that one investor may know about 5 factors that look likely to affect a stock’s future performance, but there will often be many other factors that are unknown. You simply don’t know what you don’t know. The subjectivity is also a problem, quite often good news is bad and bad news is good depending on many known and unknown factors – no one can have all the information regarding fundamentals. Technicals eliminate the subjectivity and the unknowns, whilst providing levels at which to place stops and limits – but imho it takes a lot of work and experience to get technical trading “right” – or at least to a level where you are regularly profitable over a long period.

Having said all that, there is a very big difference between trading and investing. In both cases, we use certain techniques to arrive at or justify a decision to buy or sell. I guess there is no right or wrong, if a person is making 20-60%+ returns per year using either method then it doesn’t matter – but the results should speak for themselves.

There is one exception where I do not purely use technicals – I have mentioned it before – and that is oil and related products. In this case, because there is a huge physical market with all the logistical factors of storage, transportation, refining and so on that can affect the prices both short and long term – I do feel it is necessary to have a good understanding of the fundamentals of this market. This is very different to trying to understand the fundamentals of an equity involved in biotech – where one cannot access in realtime the results of a study, or that a laboratory has had a power failure or a fire, or access in realtime the cumulative or running R&D costs for a stock and their competitors etc etc. Now I know this might sound obvious, but I wouldn’t trade oil if I didn’t have access to and understood a vast number of factors (not all ofc) affecting oil and product prices – and I certainly wouldn’t trade an equity based on so relatively little fundamental knowledge of an equity….

Lastly, you probably have all heard the adage that “the market is never wrong”? I see it the opposite way. In my view the market is almost always wrong. Here is why. If you look at any graph of business cycles or debt or a long term chart of stock markets there is a steadily rising line which represents a few % growth per year which is the mean, but the prices of the stocks, the level of debt, or the business cycle swings wildly around this mean line both to the upside and downside. On the few brief occasions that the oscillations crosses the line the market is “right” – the rest of the time we are overcompensating both up and down. So with CLVS, the company is now worth 5.7% less than it was yesterday apparently. Is that correct, or was the market wrong about the stock yesterday?

Understanding the human psyche is more important imho than trying to follow fundamentals in cases where there is little access to any objective data. If you remember there was a large ww2 bomb found in a German city quite recently? Once found, the authorities closed down the whole area in the middle of the week affecting hundreds of thousands of commuters and companies trying to do business for a day or two whilst they removed it. Why? Because there was new information which was acted upon irrationally. The bomb had been there for 70+ years and never harmed anyone in that time, but as soon as the information of its existence was received we as humans then had to remove it within a day or two. The reason for mentioning this is that we humans tend to think that we know stuff. We tend to think that we understand the consequences and meaning of new information. This is what trying to trade or invest on a fundamental basis only is like. I use technicals to take the subjectivity out of the equation. A trade setup is either there in the charts or it isn’t. It’s either there or it isn’t whether there is a 75 year old bomb found tomorrow or not., whether it gets removed within 24 hours of being found despite having been there for the previous 657,500 hours without incident.

Good luck all.
J

By: stalwar

stalwar — Fri, 24 Feb 2017 01:27:32 +0000

…forgot to add that the ‘fundamental’ observations being made around stocks like CLVS are not predictions; they are about presence/probability of unexpected events happening (desirable or not) – exactly like surprises that earnings can deliver and which I’ve often heard you caution about, whatever the charts are saying. Biotech as you know is replete with these and it may give an extra edge to know of their presence (or not).

By: stalwar

stalwar — Thu, 23 Feb 2017 23:22:42 +0000

Certainly seems like TA wins out short term – and even possibly on some longer horizons – from what I’m seeing here. I’m typically a v long term fundamental investor (3-5yrs) focused on healthcare and biotech (often around R&D development) and trying to figure out if TA helps at least finding better price entries. Don’t have any edge on Clovis so can’t incorporate anything fundamental into these technicals – except the observation that there is high expectation of takeover for this company (my view is mistakenly, but not betting either way) and it can pop unexpectedly any time M&A events/ chatter heats up across the space – even if the company is overvalued already (plus with v dodgy management), So holding on the way down could require strong nerves.
One reason driving the drop today (again, a fundamental if potentially meaningless observation) was the publication of a letter to the New England Journal by a couple of Memorial Sloan physicians cautioning that the class of drugs that Clovis and other companies like Tesaro are developing may not deliver the survival advantage that is assumed. Certainly will admit it appeared like magic in parallel with the poor technicals. Worth looking at TSRO, along with CLVS to see if the tea leaves are saying this M&A fueled run might be coming to an end.

By: rsotc

rsotc — Thu, 23 Feb 2017 22:09:45 +0000

In reply to stalwar. Ah.. the age-old debate of technicals (charting) vs. fundamentals. One point regarding fundamentals when incorporating them into your analysis is the fact that every thing that you mentioned above (assuming that it is true/correct, which I'm not saying that it is or isn't) is most likely already 100% priced into the stock. In fact, by the time you read or hear about any positive or negative development or competitive edge on a company, other than inside (non-public) information, it has most likely already long since been reflected in the stock price. Stocks & as well as the stock market typically look out 6-9 months ahead. Never in the history of the stock market has a recession been identified, nor predicted by the majority of reputable & competent economists, until many months & many percentage points of losses after the bear market is already well underway. My background was in fundamental analysis as a business major & 13 year career as a stock broker straight out of college. While I still appreciate & incorporate fundamental analysis into my longer-term investing, the are nearly 100% worthless in attempting to determine the very near-term direction of a security. Swing traders must rely almost exclusively on charts where as trend traders & investors can & should incorporate both TA & FA into their security selection & timing. BTW- CLVS ended up closing down 5.69% on the day, a gain of 9.7% on the short trade so far. I'm holding out for T2 (final target) at this time.

By: stalwar

stalwar — Thu, 23 Feb 2017 15:11:47 +0000

Feels hard to imagine CLVS declining significantly in the near term from fundamental standpoint. CLVS has launched and is further developing, a cancer drug in a class known as parp inhibitors (for ovarian cancers and potentially much beyond). While there are a competitors in the space all of them (eg TSRO, the best of them) are strongly supported -and levitated- by the hope of takeout by larger biopharma, as the value of this drug class is becoming increasingly apparent. Next event for CLVS is a major p3 trial readout mid-year and widely expected to be positive (and much already in the stock). Unless it becomes clear that CLVS drug is inferior to others the company will remain as an M&A play (hard to make a claim about any of these drugs being differentiated so far, but will become clearer as the year progress – on other hand CLVS drug may have patent issues but nobody seems to be making this case so far, and could become a wildcard for downside in the longer term).