Upside For Sirtex

This story features SIERRA RUTILE HOLDINGS LIMITED. For more info SHARE ANALYSIS: SRX

Bottom Line 08/10/14

Daily Trend: Neutral
Weekly Trend: Up
Monthly Trend:Up
Support levels: $21.55 / $21.24 / $20.20 / $18.21
Resistance levels: $22.52 / $23.33

Technical Discussion

Sirtex ((SRX)) is a biotech and medical device company with a primary objective of manufacturing and distributing a liver cancer treatment via SIR-Spheres microspheres. These SIR-Spheres microspheres are proven and effective. Whilst significant upside use of the product is possible after the trials, investors should be cautious of risks related to its single product focus and the extremely low liquidity of the stock. For the year ending the 30th of June 2014, revenues increased 34% to A$129.4M. Net income increased 31% to A$23.9M. Broker/Analyst consensus is “Hold”.

Reasons to be bullish:
→ Dose sales grew 27% in the fourth quarter which exceeded most brokers’ forecasts by a substantial margin.
→ The SIRFLOX trial could add significant value if successful.
→ Sales grew 27% in the 4th Quarter, year on year.
→ Extremely strong price trends and patterns.
→ Positive results from clinical stage trials.

Our headline last time was “…Impulsive price action kicks in…”  which could only be viewed in a positive light.  We also noted the large increase in volume during strength which added weight to the bullish case.  The mere fact that higher prices have been seen during difficult market conditions reminds us what a strong performer the company has been…and continues to be.  In fact you’d have to go a long way to see a cleaner trending stock from the 2011 lows with the company gaining over 469% since that time which is a colossal effort.  So is the stock overbought?  Technically there is no reason to suggest that it is.  A consolidation period has been unfolding since the beginning of September which has been taking the form of a descending triangle.  These types of structures usually contain 5-internal swings which is the position we find ourselves in now.  For the pattern to remain in a position it’s important that the recent pivot low at $21.55 isn’t penetrated.  If it is, the triangle is going to morph into a more conventional a-b-c pattern offering slightly lower prices.  Any retracement should be limited to $21.00 with buyers returning at those lower levels giving reason to sit up and take notice from a trading perspective.  Providing a helping hand over the short term is Type-B bullish divergence.  This isn’t the strongest variety although this could morph into Type-A over the coming days meaning we need to keep a close eye on the divergence oscillator.

Trading Strategy

If you don’t mind trading against the broader market trend then the triangle does provide a set up.  Buy following a break above the upper trend line of the pattern at $22.53 with the initial stop placed just beneath the lower boundary at $21.50.  If you want to allow a little more wiggle room then $21.20 can be used for the initial stop.  As it is a company looking to break into all-time highs there’s no high probability target area so a trailing stop will be used to manage positions.
 

Re-published with permission of the publisher. www.thechartist.com.au All copyright remains with the publisher. The above views expressed are not by association FNArena's (see our disclaimer).

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