Trade Of The Week: Week Of 7-10-11

With earnings season upon us and an overbought market, any long trade is a bit more riskier right now.  With that being said, I’m sticking to the biotechnology sector this week as many times it can act as a safe haven from any general market weakness.

This week, the trade is in SciClone Pharmaceuticals (SCLN) as it nears 52-week highs.  Yahoo finance explains SCLN as the following:

SciClone Pharmaceuticals, Inc. engages in the development and commercialization of therapeutics for the treatment of cancer and infectious diseases in the Peoples Republic of China and internationally. Its principal product is ZADAXIN for the treatment of hepatitis B and hepatitis C viruses, and certain cancers, as well as for use as a vaccine adjuvant or as a chemotherapy adjuvant for cancer patients with weakened immune systems. ZADAXIN has approval in approximately 30 countries, primarily in Asia, eastern Europe, the Middle East, and Latin America. The company markets and sells ZADAXIN principally through its distributors. It is also developing SCV-07, which is in phase 2 clinical trial for the treatment of oral mucositis and hepatitis C virus; and ZADAXIN (Thymalfasin), which completed phase 2 clinical trial for the treatment of stage IV melanoma. SciClone Pharmaceuticals also has commercialization rights for DC Bead, a product candidate for the treatment of advanced liver cancer in China, as well as for ondansetron RapidFilm, an oral thin film formulation of ondansetron to treat and prevent nausea and vomiting caused by chemotherapy, radiotherapy, and surgery in China and Vietnam. The company was founded in 1989 and is headquartered in Foster City, California.

Fundamentally speaking, yahoo finance has SCLN with about $70 million in capital and only $2.50 million in debt, a very solid ratio. Forward P/E is only 8.28 and a PEG ratio of .61.  As of June 15, 2011, short percentage of float was about 6.70%.

Technically speaking, SCLN is near 52-week highs ($6.40 as of June 29th) and has had a modest pullback, but gaining traction again to the upside.  The trade is to buy SCLN on a light volume pullback near $5.90 or an enthusiastic volume move above $6.27.  A tight stop would be placed just under $5.90 or the 20-day SMA.  A looser stop would be placed just under $5.53 or the 50-day SMA.  We would be cautious of any Monday morning movement and take profits quickly due to the extra volatility that tends to start a week out.  See annotated chart for more details.

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As always, do your own homework to see if you agree.  Be careful with earnings season during this overbought market.  Good luck out there,

Mike

At the time of publication, Kudrna had no positions in mentioned stock but may initiate a position within 72 hours.
(SCLN: 6.21 0.00 0.00%, vol: 0, avg vol: 405,009, 50-day: 4.90, 200-day: 4.28, yield: N/A, cap: 351.3M, short ratio 5.40, 52wk: 2.08 – 5.91, 1yr target: 6.50)