VPHM - Sector: Healthcare---Industry: Biotechnology & Drugs

[Melf Elf]

If we visualize the MACD (solid red) as a hockey puck, and the signal line (dotted red) as the hockey stick, we can see that the "puck" is sliding back toward the "stick," beautifully position for a "slap shot" into the goal, just as it was last November, when VPHM had a nice rally to the 15.55-15.56 Major Resistance.

For those of you interested in technical analysis, I want to follow up on that "slap shot" signal (for lack of a better term).  It's one of my favorites, and it can be very profitable, particularly if shows up in conjunction with a pattern in the chart, as it did in all three of these examples below.

There's no reason, technically, to expect the percentage gain to be the same,

It actually came out a little better.  The gain on the January signal was 24.7% vs. the 20.3% gain in November. 

but it would seem that coming out of a nice pattern breakout like this, the target certainly ought to get MADE, and quite possibly exceeded on this rally.

The DOUBLE Bullish Inverse H&S target of 16.95 was exceeded, I suspect at least in part, because of the tremendous strength of that pattern. 

Structurally, since blasting out of the Bullish Inverse H&S Island Reversal (with No Right Shoulder) on August 24, 2006 VPHM has been a thing of beauty, technically, as the patterns have evolved and broken out, support has been re-test and held, and targets have gotten MADE.

Not only was that the case on the upside, VPHM acted just as well, technically, in achieving its Double Top target of 15.98 this last week.

We'll take a look at the chart in a moment, but first, notice the "Reverse Slap Shot" Signal (for lack of a better term) issued at the Double Top in late February.

See how the MACD crossed below its signal line, then moved up for a re-test of its signal line?  It "got stuffed" right there, similar to a basketball player, going in for a lay up.

Those slap shot signals don't always work.  Nothing does, as far as I know.  But, when that signal is issued in combination with a pattern breakdown (The Double Top that we're going to examine next), or the upside pattern breakouts that VPHM had in November and January, more often than not, I find that the signal is good.

Although the Double Top target of 15.98 MADE on the downside, and it's generally considered to be much more fun to achieve targets on the upside, for technical merit, VPHM still has to be scored....








...10...10...10...10...10...10...11...



Judge #7, Melf Elf, continues to be a sucker for beautiful technicals.

[Melf Elf]

First, we analyze charts, then we have to play them.  I always find the former much, much easier than the latter.

The "Reverse Slap Shot" signal was issued on February 23, when the MACD "got stuffed" at the back-test of its signal line, then turned down, suggesting that a Double Top was in.

The close that day was 17.95.  The highs of the Double Top were 18.39 and 18.24, so the stop on the trade would be above 18.39, so 18.40, or a few pennies above that for a minor upside fakeout.

Risk on the trade: a loss of about 2½%.

The "pivot" of the Double Top, or "M" top is 17.11, the intervening low between the 18.39 and 18.24 tops.  A break of 17.11 would put a target of 15.98 IN PLAY, for a gain of 11% on the trade if the target MADE.

Risk:Reward better than 1:4.  Very nice.

Math for the Double Top Target

18.24 - High (I always use the more conservative of the highs

17.11 - Pivot low

18.24 - 17.11 = 1.13 points

17.11 - 1.13 = Target: 15.98

I didn't take the trade because of two of my many demons.      

Demon #1: I don't like shorting stocks that are bullish, especially stocks that have been as bullish as VPHM was off the July low of 7.07.

I need to get over that when I've got strong technical evidence, as I did, that it was very likely that a Double Top was in, and when the risk:reward on the trade is that favorable (1:4).

The Double Top already had broken below 17.11 before earnings came out, so it was confirmed.

Demon #2: I generally don't like having a position at all ahead of earnings unless I've got the cushion of already having a gain in the stock, let alone entering a short position in a stock that has been bullish, and in a stock in which I expect good earnings.

I need to get over that, too.  Earnings got reported.  Earnings were fine.  The 15.98 target still got MADE.

"Follow what you see, Melf, not what you think."

The demons are tough, aren't they?    

That said...

What I'm seeing now, is VPHM holding at the neckline (blue down-sloping line), with the Kumo (Cloud) coming up to support it.  The bottom of the Kumo is at 15.125.  Friday's low was 15.19.

On the upside, the 16.25 - 16.47 gap area from earnings looks to be a magnet for a reflex rally, at a minimum, since the overall chart still is bullish, and no serious technical damage was done.

It's a shame that VPHM fell all the way to 14.56 on the reporting of earnings, because I'd want my stop under that low, but the fact that VPHM recovered  so well into the close suggests that the swoosh to 14.56 was a technically-driven over-reaction on the downside, due to the facts that:

1. The Double Top had broken

2. On earnings, VPHM gapped down right below the trendline (purple) off the July, 2006 low of 7.07, which likely brought in some additional technical selling.

That broken trendline now sits up in the 16.25 - 16.47 gap area, serving as a magnet for a re-test.  The 8-day Tenkan-sen (solid green line) and 22-day Kijun-sen (solid red line) also are up there, at 16.37 and 16.475, respectively.

From Friday's close of 15.32, the risk on a stop out at 14.55 is a loss of 5%.

If the target of 16.46  (the gap fill) gets MADE, the gain is 7.4%.

That's about a 1:1½ risk:reward.  I like at least a 1:2.

If VPHM trades down to 15.10...15.11...15.12...15.13, something like that, I'll probably play it.  If the general market isn't going nuts again, and if Scottrade isn't disconnecting me every half minute.

[la-onda]

Two main support levels in my opinion:
around 15$ and 14.50$
please download latest attached Lazard report!
still holding VPHM & IPXL, both stocks will be outperform even in a bear market.
chart quotation:

[la-onda]

If VPHM trades down to 15.10...15.11...15.12...15.13, something like that, I'll probably play it.  If the general market isn't going nuts again, and if Scottrade isn't disconnecting me every half minute.

so are you playing VPHM again Melf Elf? 
I like your demon theory 

still invested in VPHM, IPXL;
also QID.

Watchlist: OPBL, SLP, PTCH and FRPT !

cheers
Oliver

[la-onda]

fyi:
IMS Health Weekly Prescription Continued
   
Total prescriptions of 4,761 for the week ended 3/2/07 is, I believe,
a new record (I will confirm later today). Last weeks total
prescriptions was 4,488. New prescriptions this week are 4,067, also a
new record. Last weeks new prescriptions were 3,899. The jump in
prescriptions from last week to this week are very strong.

[Terliso]

Short VPHM -- Dilution

Viropharma Shares Fall on Notes Offering
Tuesday March 20, 12:03 pm ET
Viropharma Stock Drops on Company's Plan for $200 Million Senior Notes Offering

NEW YORK (AP) -- Shares of biopharmaceutical company ViroPharma Inc. sank Tuesday after the company said it plans to sell $200 million in convertible senior subordinated notes due 2017.

The stock fell $1.15, or 7.6 percent, to $14.05 in midday trading on the Nasdaq Stock Market. Shares have traded between $7.07 and $18.39 over the last 52 weeks.


Late Monday, the Exton, Pa.-based company said it filed a shelf registration with the Securities and Exchange Commission, allowing the company to offer convertible debt securities and common stock from time to time. Underwriters have an option to buy an additional $30 million in senior notes.

Proceeds from the offering will be used for general corporate purposes, including potential strategic investments or acquisitions of products or other companies.

In February, the company reaffirmed its guidance for 2007 product sales between $195 million and $205 million. The company's key product on the market is Vancocin, which treats gastrointestinal tract infections. Net product sales totaled $166.6 million in 2006.

[la-onda]

ViroPharma Prices $225 Million in Convertible Senior Notes Due March 2017
Tuesday March 20, 11:24 pm ET

EXTON, Pa., March 20 /PRNewswire-FirstCall/ -- ViroPharma Incorporated (Nasdaq: VPHM - News) today announced the pricing of $225 million aggregate principal amount of Convertible Senior Notes due March 2017, pursuant to a registration statement filed with the Securities and Exchange Commission yesterday. In addition, the underwriters have been granted an option to purchase up to an additional $25 million aggregate principal amount of Notes from ViroPharma.
The Notes will pay interest semiannually at a rate of 2.00 percent per annum. The Notes will be convertible, in certain circumstances, at an initial conversion rate of 52.9998 shares per $1,000 principal amount of Notes, which represents an initial conversion price of approximately $18.87, a 32.50 percent conversion premium based on the last reported sale price of $14.24 per share of ViroPharma's common stock on March 20, 2007. Upon conversion, holders will receive shares of common stock, subject to ViroPharma's option to irrevocably elect to settle all future conversions in cash up to the principal amount of the Notes, and shares for any excess.
ViroPharma estimates the net proceeds from this offering will be approximately $217.6 million after deducting estimated discounts, commissions and expenses.
The net proceeds of the offering will be used to fund general corporate purposes including strategic investments or acquisitions of products, technologies or complementary businesses. No commitments or agreements have currently been made for any specific acquisitions. ViroPharma also intends to apply $20.9 million of the net proceeds of this offering towards the cost of the convertible note hedge transactions entered into in connection with the offering. These transactions are expected to reduce the potential dilution to ViroPharma's common stock upon future conversions of the Notes.

Goldman, Sachs & Co. is the sole book running manager for the offering and CreditSuisse and Piper Jaffray are serving as co-managers for the offering.

[la-onda]

fyi:
Viropharma Inc forms bullish "Continuation Wedge" chart pattern
Mar 28, 2007, 4:00 PM ET

NEW YORK, Mar 28 (Recognia Alert Wire) -- A "Continuation Wedge (Bullish)" chart pattern formed on Viropharma Inc (NASDAQ: VPHM). This bullish signal indicates that the stock price may rise from the close of $14.30 to the range of $18.20 - $19.10. The pattern formed over 26 days which is roughly the period of time in which the target price range may be achieved.
A Continuation Wedge (Bullish) is considered a bullish signal, indicating that the current uptrend may continue. Prices edge steadily lower in a converging pattern i.e. there are lower highs and lower lows. The technical event occurs when prices break above the upper trendline, thereby confirming the pattern. This bullish pattern can be seen on the following chart and was recognized by Recognia Inc.'s patented pattern recognition technology.

Scotsman,  your opinion is appreciated 
cheers from Singapore
O.

[buddjas1]

all I see is two consecutive bear pennants...  Certainly not a entry point signal for me.

[ScottishTrader]

Oliver,

seems like real strange news to me "VPHM formin a falling wedge" but hey 

As far as my thoughts, pulling the resistance line off the $18 level (in green) doesn't make a lot of sense on this chart and certainly doesn't fit the falling wedge pattern.  I would prefer to use the descending channel/wedge line coming off the high of the day after the big red candle.  This descending channel, if broken to the upside, would give me a $17 target (high of 16.25, low 13.27 => range = 2.50, breakout at 14.50 => target of $17).  I've played a lot of falling wedge breakouts, and the problem is that they are not super reliable.  Also, the ones that seem to work best are the big ones, that have several bounces off support and resistance, so they are clearly defined.  Having said that, we did see som volume pickup on the 2 positive days after it broke hat supposed resistance line.

I also think that in this scenario it is most important to look at support and resistance and calculate risk/rewards baseed on that to develop an appropriate strategy. In the bullish case, right now, Upside resistance right now appears to be the 14.40-44 region and then just above that at 14.58-60. we could buy a print of 14.45, and have clear support between 13.85 and 13.75, so a stop below there would (say 13.73) would represent a risk of about 4.85% (although I have to say a slightly more conservaitve stop below 13.60 might be moe appropriate).   So buying a print of 14.45,  With a $17 target,  we would be talking about a potential reward of 17.5%. So for a new entry, the risk:reward isn't too bad, although there may also be resistance around 15.60 to get through too.

However, Buddjas1 has a point about the rising wedges too - having a look at the 30 minute chart, you can see a clear descending channel, and that VPHM has formed 2 bearish patterns since breaking down.  The first was a descending triangle that VPHM gapped down out of on 20 March.   This triangle breakdown put a target of $13 IN PLAY.  VPHM really needs to get bove 14.60 to put this downside target on hold.  The second is the rising wedge that has formed since then.  A move below 14.15 would constitute a breakdown of this pattern, and may represent another wave of selling, putting a target of 13.50 IN PLAY.

I'm not totally sure what killed VPHM's stock price (was it the just market meltdown at the end of Feb?)  but it does look like VPHM hit an important support zone for the stock at 13.75.  Of course, Oliver, I expect you still own VPHM, I know you are a long term holder.  I would look for a resolution of this latest pattern to determine the next direction of the stock.  If you are looking at managing your current position, a red candle breaking down through $14.15 would probably be a clear warning of a possible imminent breakdown, and you could decide to sell that, but given the longer term (daily) chart patterns of support, a stop just below 13.50 should offer reasonable protection.

[ScottishTrader]

Man, ok now you got me thinking.

The real problem is that looking at the long term chart, VPHM doesn't exactly look bullish here.  While there is clearly some support at 13.75, $12.80-$13 looks to be the stronger support level.  Also there is the possibility of a bearish H&S top.  $15.60 looks to be key resistance, from the lows of late 05, when VPHM was up in the $20 range, and even if VPHM gets a rally, a rally to that level could make the right shoulder of that pattern.  The technical target of the H&S top would be $9.10, right back in the doldrums.

SO I have to say I'm undecided about VPHM.  A break above 14.45 could lead to a rally, but i'd be real careful about 15.60 resistance.  A breakdown and we could very easily see VPHM sitting at $13.  Right now, its hard to know which way the market will swing it, so I would watch the price action to see how it develops.

Hope all this helps Oliver,

ST

[ScottishTrader]

and what did VPHM do after all this discussion?  That's right, it gapped down below buddjas's rising wedge this morning, making it look very much like a bearish continuation pattern.  During the morning VPHM rallied right up to the base of the wedge, even poking its head through, but the best it really managed was to fill the gap and find resistance at 14.25.  That breakdown puts a target of 13.53 IN PLAY

I have to admit that I shorted this downside breakdown today.  It seemed like a reasonable short term play, and with a stop above 14.25 (although above 14.44 would be more conservative), my 14.05 entry represents fairly minimal risk, barring a gap up.  My target for this short is the $13 level, so I'll see if VPHM gets that far, but for now it doesn't look terribly strong, and i anticipate further downside.

[ScottishTrader]

just to let you know I closed my short postition this morning - VPHM was loking positive, markets are up, and hey, I don't really like being short nyway.  It was only sall and I only lost about .10 on the trade.  VPHM looks better tody, but still needs to get over 14.45 resistance.  If it did this, I think it would look a lot better.

[la-onda]

fyi:
The FDA dockets page

http://www.fda.gov/ohrms/dockets/dockets/06p0124/06p0124.htm

was updated with 2 items:

1) http://www.fda.gov/ohrms/dockets/dockets/06p0124/06P-0124-emc0001-02.pdf

Letter by Reza Fassihi, Ph.D., AAPS Fellow, Professor of Biopharmaceutics and Industrial Pharmacy, Temple University School of Pharmacy, Philadelphia, PA 19140, requesting that ".......the OGD reconsider the potential approval of an ANDA of Vancocin Capsules based solely on in vitro dissolution testing. This agent is representative of a larger class of locally acting gastrointestinal agents for which the most appropriate means of determining bioequivalence has been debated by experts for several years. Until a better understanding of the relationship between in vitro dissolution and in vivo performance of locally acting agents such as Vancocin capsules is determined, this method to determine bioequivalence is not in the best interest of patients. In the absence of such data, I strongly encourage the OGD to require clinical trials to determine bioequivalence for Vancocin Capsules if the therapeutic objectives are an equivalent clinical response."

2) http://www.fda.gov/ohrms/dockets/dockets/06p0124/06P-0124-emc0002-02.pdf

Viropharma letter to FDA dated march 16, 2007, outlining they have initiated a study with Temple University to establish the appropriate in vitro conditions (representing the sick GI environment) that one should use in dissolution testing to arrive at  bioequivalence for locally acting drugs. The test compares the pH and temperature in the stomach, SI, and colon of CDAD patients and healthy volunteers, as well as gastroenterocolonic motility. Letter is accompanied by detailed protocol.

Viropharma is taking action 

[la-onda]

just FYI:

Study by VPHM to Help Long-Term

ViroPharma (Nasdaq: VPHM) plans to conduct an exploratory study of
C.difficile infected patients in order to prove that the
gastrointestinal track of these patients varies greatly, not only
between infected patients, but significantly enough from healthy
patients that in vitro dissolution testing should not be considered
adequate enough to prove bioequivalence for a potential generic oral
vancomycin (Vancocin).

We do not see a potential generic alternative until 2010. By that
time we believe ViroPharma will be a dramatically different looking
company with potentially both Maribavir and HCV-796 on the market.
We continue to rate the shares a Buy with a $21 target.
http://www.zacks.com/research/get_news.php?id=099b9877&t=VPHM