MELA

[AussieTrader]

The Plan
Over the weekend we gave you an early insight into a great speculative opportunity. Well here are the details.

Profile:
Electro-Optical Sciences, Inc., a medical device company, engages in the design and development of a non invasive, hand-held imaging, and point-of-care instrument to assist in the early detection of melanoma in the United States and internationally. The company's principal product, MelaFind, features a hand-held imaging device that emits light of multiple wavelengths to capture images of suspicious pigmented skin lesions and extract data. The data is then analyzed through its proprietary database of melanomas and benign lesions to provide information to the physician and produce a recommendation of whether the lesion should be biopsied. It primarily serves general dermatologists, plastic surgeons, and primary care physicians. The company was founded in 1989 and is based in Irvington, New York.
Market Cap: $140M
Sector: Healthcare
Website: www.eosciences.com

Trading Idea:

Technical Analysis:

Technically the chart looks beautifully primed for continuation. A series of volume backed breakouts followed by lower volume consolidation have been a feature of this stock since back end of March. The most recent breakout pierced all time highs on biggest volume yet and has consolidated by time not price just above that all time high breakout level. You can't ask for much more than that from a technical layout. Notice also that volume whilst growing and OK from a liquidity perspective still has not reached levels whereby a wide audience of traders have been exposed to it, meaning more exposure WILL give even greater forward momentum.

Fundamentals:

MELA has a revolutionary product which in around 6 weeks time will gain FDA approval. That product is MELAFIND, a non invasive skin cancer screening product (see the picture below, looks a bit like a hairdryer!!). Detecting skin cancer is a huge and growing area. I live in Australia and really it is a subject mentioned nearly every day. When MELAFIND gets FDA approval (and leading up to it). I fully expect it will be trading MUCH higher than the current price level and with much higher volume as the wider investment community gets involved.
A couple of small analysts are following it and I attach a research note below, basically they have no revenues to speak of as they are finalizing the development of this product, so bear that in mind when looking at the report.
Now, MELA is doing the rounds in terms of being recommended by a certain investment service that have a great long term track record of finding and profiting from many different scenario's. That service is a subscriber based service and not a general public access one, so we are not alone in looking at this one.

Medical stocks with pending FDA approval......hmmm indeed speculative, high volatility, news dependent, subject to pump and dumps, what if the FDA says no etc. Also the stock has doubled since end of March, no doubt fuelled by those in the know taking their speculative positions.
For 2 years prior to that it has been in decline because it was in development stage, not many people want to park their $ for 2 years whilst a product get developed. All that said, I think this set up has a hugely positive risk to reward possibility which we cannot ignore.

We want to participate in this type of speculative play, but at the same time limit downside risk. So the proposal will be to enter in two positions using 50% of normal position size each. Position one; buy at or around the open today. Position 2; set a buy stop entry at $9.95 (just shy of the $9.99 high) to get us in if and when this does start to run again. Thus we will have a full position once breakout occurs.
No stop or target will be set just yet, that would be counter productive to trying to gain access to the full outcomes of this position. We will update that as the trade starts to devlelop.

Trading Plan:

Position 1; half position at or around market open
Position 2; half position using a buy stop order $9.95
If the market gaps open above $9.95 today take a full position

[AussieTrader]

Update:

MELA participate at the Needham & Company Biotechnology and Medical Technology Conference on the 11th June. At 1:30PM ET you can listen in to the live web cast of their presentation. Go to www.eosciences.com click on the read more link relating to the conference and then locate the web cast icon.
Volume in MELA picked up today (3Stocks Premium subscribers taking positions perhaps!!!) and a nice bottoming tail candle was formed after an early morning downside test occurred. Maybe some of you were able to pick up a position in that period? Technically this is still a great looking set up as the old March 06 all time high continues to be held. The pattern suggests upside breakout as the probable next move. The trading plan therefore remains unchanged.

Trading Plan:

HOLD MELA
Position 2; half position using a buy stop order $9.95

[AussieTrader]

Update:
Technically this is still a great looking set up as the old March 06 all time high continues to be held. The pattern suggests upside breakout as the probable next move.

Update:

Me and my big mouth!!!

Yesterdays action is why we only have half a position, waiting on the other half for breakout movement. Technically it is pretty normal pattern for MELA as you can see from the volatile way it has been ascending these past couple months.

A reminder on the Conference 'MELA participate at the Needham & Company Biotechnology and Medical Technology Conference on the 11th June. At 1:30PM ET you can listen in to the live web cast of their presentation. Go to www.eosciences.com click on the read more link relating to the conference and then locate the web cast icon.'

No change to the trading at this point.

Trading Plan:

HOLD MELA
Position 2; half position using a buy stop order $9.95

[tokyopua]

This ugly market making it look like a gap fill could be likely here.

[AussieTrader]

This ugly market making it look like a gap fill could be likely here.

Indeed Tokyo the market selloff is ugly, but at the same time beautiful dependent on your viewpoint, positions and timeframes (Long / Short). I don't know if that gap will fill or not, it is also right in the heart of ascending support, I have marked it as the 'Tokyo Gap' on my chart. The market will tell us.

Update:

Lets look at the output from the Needham conference.

MELA updated their position regarding MELAFind at the Needham conference, the information on the trials being conducted were very positive and specific in the detail. They have had pre filing conversations with the FDA in May and report back that "The FDA reviewer confirmed that the company's PMA outline and filing strategy were acceptable and provided specific instructions regarding the presentation of data from the pivotal trial". The CEO Dr. Gulfo concluded "the development update by stating, "We look forward to a very busy second half of 2008 including the PMA filing in the fourth quarter."

You can listen to the entire update via the website www.eosciences.com or read the summarized text in the attached link:

http://www.baystreet.com/viewnews.php?storyid=630402

We have a new analyst overview following the Needham presentation from Think Panmure. They note that the FDA submission and trials whilst proceeding well have pushed out further than their initial analysis, but remain positive and recommend MELA as a buy with a $12 target. They also note that MELA have indicated they will look to raise public awareness of the product, it is a very consumer friendly product, so any marketing on that basis will raise interest and speculative momentum. Anyway report attached below (bottom of page).

Technically nothing significant to report, we now need to monitor the price action and see perhaps how today's update may start to get MELA noticed by a wider audience. As we now have specific timeframes indicated by the company relative to the trials reaching their correct sample levels (imminent) and the indicative filing timeframe (given as Q4).

The timeframe and targets for this trade are still relatively unknown as we are anticipating a speculative run based on the steps leading to a positive FDA submission.  The only possible change to the trade plan might be an adjustment of the buy stop price perhaps to take into account a break of the descending resistance (1) on the chart. Or worst case a review based on technical breakdown. However no change will be made just yet.

Trading Plan:

HOLD MELA
Position 2; half position using a buy stop order $9.95

[soxguy]

Where is the support level on this one?

[AussieTrader]

Where is the support level on this one?

There is very strong ascending support for MELA Soxguy in the identified zones in this and previous updates.

Update:

A hugely volatile day for MELA, I assume the price action being a direct result of selling pressure in light of the push out of timeframes for the FDA submission of MelaFind and subsequent revenue impact this will have. The Tokyo gap indeed filled (and some).
Technically the sell off was on strong volume and found support in the previously shown ascending line area which is further reinforced by the ascending 50MA. From this point I am looking for MELA to hold or bounce from this zone.

We will continue to monitor the technical layout; right now the trade plan remains unchanged.

Trading Plan:HOLD MELA
Position 2; half position using a buy stop order $9.95

[pinoleropuro]

Laonda this is the print screen as you requested.
I couldn't do it yesterday because I was not using my computer.

[tokyopua]

Hey Aussie,  noticed you dont have many indicators on your chart excepte th volume and ATR.  How do you use the ATR and why only that, do your really like it, or is it just there for some other reason?

[AussieTrader]

Hey Aussie,  noticed you dont have many indicators on your chart excepte th volume and ATR.  How do you use the ATR and why only that, do your really like it, or is it just there for some other reason?

Thanks for that question Tokyo, I have put together a little video to show why I use ATR. And will look to post it later today / Tuesday for you to see.

Update:

MELA had another weak day and again found support in the ascending line and the 50MA 'zone'. Although the outcomes from this trade remain as we initiated we need to ensure we don't get caught in a further wave of downwards price action. That price action I believe is a consequence of the FDA submission being pushed out further than previously hoped. So we will introduce a stop today.

We will use the recent low as a protective zone and position our stop below that point. If price were to fall through that low I would envisage it looking downwards to the longer term support just above $6. It makes no sense for us to ride that train downwards.

So we will introduce a stop on our position at $7.15. And for now we will keep our second entry alive. If we do get stopped out, then that second entry dies as well.

Trading Plan:
HOLD MELA
Stop at $7.15
Position 2; half position using a buy stop order $9.95

[AussieTrader]

Update:

Technically we had a nice reaction from the ascending support line / 50MA zone. There is nothing new to add from a technical or fundamental standpoint, so for now the trading plan remains the same.


Trading Plan:
HOLD MELA
Stop at $7.15
Position 2; half position using a buy stop order $9.95

[AussieTrader]

Update:

Technically MELA is respecting ascending support and personally I think shaping up for the next leg upwards which will probably be driven by some news release or positive update on MELAFind.

What that news will be is a question, MELA have stated before they will conduct 'public awareness strategies to get the product more widely seen, so something related to that could be in the pipe. Also looking at their Needham update the CEO stated:

"over 1,500 lesions from 1,100 patients have been accrued, including more than 100 melanomas, over 85 of which are eligible and evaluable for primary endpoint analyses. Accrual in the pivotal trial will be complete when 93 eligible and evaluable melanomas are confirmed, which is anticipated within several weeks. "

A news release relating to the 93 number pivotal trial being reached may be another. But I speculate. So for now we have to wait.

I am still evaluating our 2nd entry position and will give that more analysis. But for now the trading plan remains unchanged.

Trading Plan:

HOLD MELA with Stop at $7.15
Position 2; half position using a buy stop order $9.95

[AussieTrader]

Update:

MELA is consolidating or drifting on puny volume. The last 6 trading days have had small range (volatility). This is what you want in consolidation, movement more by time than price. Although it has drifted outside the ascending support I am not overly concerned as there is plenty of near term support between the current price and our stop. We continue to await a catalyst to garner wider interest, the potential is there, the volume not.

The length of this pullback is kind of making our initial second entry price outdated and it may be sensible to change that to a break of the descending resistance, but I will not change the plan just yet.

Fundamentally no new developments to report.

Trading Plan:

HOLD MELA with Stop at $7.15
Position 2; half position using a buy stop order $9.95

[AussieTrader]

Intraday Update:

MELA filed a shelf registration with the SEC today detailing their intention to sell up to $40M value of an indeterminate number of stocks, warrants and units at various times and manner which is as yet not specific.

I haven't finished reading the shelf but you can access it here;

http://www.sec.gov/Archives/edgar/data/1051514/000095012308007256/y61708sv3.htm

This shelf has had the effect of putting our stop in danger of being hit as people are looking to sell first and ask questions later.

Our stop remains in place, we shall see what the market does.

[AussieTrader]

Update:

The MELA shelf filing for $40M as detailed in my yesterday intraday update is pretty simple in it's aim. They want to raise capital to continue development and then future sales and marketing of MelaFind. This is all good business planning. However from a traders point of view this trade has lost its momentum and direction, mainly after the FDA delay for the product and now the shelf.

I fully expect our stop to get hit today, so we shall see.

Trading Plan:
HOLD MELA with Stop at $7.15
Position 2; half position using a buy stop order $9.95