April 16th, 2012
One of the most difficult and disappointing experiences as an investor/trader is when a stock, recently purchased based on an excellent chart with excellent prospects blows up in your face. That happened to me today.
I purchased HALO (Halozyme Therapeutics, Inc.) in January for all the right reasons at the time. The market had been steadily moving higher and biotechs were an Industry Group had been among the highest ranked of all 197 IBD Industry Groups for over a year.When the stock successfully crossed a significant resistance level, it would enter into all-time new high territory, a clear indication of further momentum moves higher. The chart at the time was:
Everything was going along swimmingly; after following through on the breakout move, HALO advanced to 14.50. But then it all came to a screeching halt today when the company announced that the FDA was requesting more information to complete its review of the HyQ Biologics License Application. The company expects these requests will require additional time to complete delaying the anticipated regulatory review and approval timeline. The stock plunged over 25% to 8.50. What was a nice, quick profit of over 40% turned into a loss.
Was the gap down last week (when the market itself was correcting) that should have been paid closer attention to and reacted accordingly (easy to say in retrospect)? What is one to do now? Is the market over reacting? Are the shares “dead money” and, if so, for how long? How long will it take for the stock close the gap? Are there lessons to be learned about buying and selling from a stock like HALO (and an industry like biotech) blowing up like it did today?
There’s no a big supply overhanging on the stock and it even if it did slowly crawl back to the resistance level it would take some time before it could try another assault on that all-time new high territory.
Fortunately, my portfolio is well-diversified and the stock didn’t represent a large percentage share of total. Today, other stocks in the portfolio more than made up for the loss in the HALO. But the question remains …. hold or abandon the position and, if so, when?