Here’s how you trade Clovis Oncology (CLVS) and Tesaro (TSRO). (December 19, 2016)
CLVS TSRO CLVS SP-500
Today I want to look at Clovis Oncology ( NASDAQ:CLVS ) as well as Tesaro ( NASDAQ:TSRO ). Both of these biotech companies have ovarian cancer drugs. Clovis Oncology ( NASDAQ:CLVS ) received an early approval from the FDA today. The reason I am showing this is because somebody posted a GREAT question in our forum today while the stock was stopped. This came out during the day (you could see some folks saw the tape, they got it early), news comes out, a news release that the stock has stopped, it has halted. Some knew why, I wasn’t one of those, and probably neither were you. So the question was, during the time that this was halted, “Hey, do you think maybe I should place a market order to buy the stock, so then as soon as it opens I can get in?” It is a good question, a lot of people tend to do just that. And I said, “Under no circumstances do you do that.” I just want to explain why you don’t want to do that.
This is just a function of supply and demand. This is why the first hour of trading can be the most profitable. This is just a dead zone here for a couple hours. This is just a total dead zone. When the stock started trading up here, when it opened for trading again, this is just like 9:30 in the morning, opening bell, ding, ding, ding, ding, ding. What happens is, the buy and the sell orders get stacked up. There is a lot of buying interest on this stock. So those that want to sell will keep backing up their sale prices from 44.00 to 44.50 to 45.00 etcetera, etcetera. And then finally, at some magical moment in time, when the stock is released for trading all those orders cluster. Well what happens is, because the stock took off so quickly, there is just so much buying pressure on this, and there is all this pent up demand, that when the stock opens the supply overwhelms the demand. It just absolutely, if you want to buy the stock here at the open, Boom! You can get as much as you want. As much as you want.
The fact that there is a quarter of the float that is short, that doesn’t have anything to do with it either. If anything, on something like this, if you say, “Well I just want to get in. I want to place an order,” fade the order, a sell at the market order, so that when the market opens up you are actually selling into this. Honestly, you really don’t want to do either one. The point was, to illustrate how when a stock is halted you have to look at this as a brand new opening rotation. One of the things that I teach in the 59-Minute Trader is how you look at these stocks that gap so much (I will start from down here) these last 10-minutes or so when the stock was ramping so much that was buying by just a few. So the stock opens up here at 22, 23, 24 percent up from where it was before this news was released, that is a stock that you want to fade into. You want to just sell into that. You do not ever want to buy that stock.
On the other hand Tesaro ( NASDAQ:TSRO ) here, same space, same drug. They have a little downside pressure here. So what are you going to do here? I don’t think there is any reason why you can’t hold both of them. Tesaro ( NASDAQ:TSRO ) here, as long as it holds the 50-day moving average, you are good. Clovis ( NASDAQ:CLVS ), you saw that kind of pin action that it had when the stock opened up for trading, this looks like a failed breakout and I guess technically it really is a failed breakout. I want you to watch this stock, I own a little bit. If the stock starts trading down into this area that is not a good thing, you don’t want to be long the stock. It was on big fakeout. But my sense is, that this $40.00 level will probably hold. The stock will probably have some work to do for the next couple days. But I think this could be an opportunity to be buying this stock. Again, not for a day trade, that was today, but to just kind of position yourself into this stock so that once all this supply from all the losers, I don’t mean that in a pejorative way, that bought this stock up here, once they have sold or decided they just want to hang on, ultimately the stock could move higher.
Just a heads-up to everybody, this is the low volume time of year. Everybody is trying to use their health insurance. They have got their deductibles paid for so we are all going to the doctor and getting our medication and doing whatever we need to do. We are shopping for the kids, the wife, the husband, the this, the that. A lot of stuff to do other than trading. And also, money managers just kind of locking in what they have not wanting to risk too much going into the last coupe of weeks of the new year. And that is why I think the stocks are just kind of drifting sideways for a while.
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