MNKD – Bears Win Bulls Win – 50314
Summary
· Shares trading in a well defined range until approval.
· Uptrend is strong because of the ADCOM blowout vote.
· Short term resistance is strong because of the FDA delay.
· Possibility for short term decline to fill gap at 5.75.
· Excellent chance for profits exist for both traders and investors.
A Matter of Perspective?
Shares of Mannkind (MNKD) dipped on Thursday and Friday after reaching a weekly high of $6.56 midweek.
Since the surprise delay by the FDA earlier last month, shares have generally traded sideways, establishing higher lows and lower highs. These movements stop just short of establishing a triangular formation and actually look like the stock is following the established uptrend, when looking only at the bottoms.
Looking at the tops gives a more nuanced perspective. Since the initial bounce after ADCOM, MNKD has shown no signs of rising in the near future. Instead it seems to be drawing a declining pennant, following a channel established by the blowoff high of August 2013 and declining as far as the medium term uptrend support. After rising to almost touch the top of the medium uptrend channel, it failed to repeat that performance and stopped rising at the short term resistance. This firmly established the short term downtrend.
We All Have Our Reasons
Short term resistance is very strong for several reasons. First, of course, is the long and tortured history of the stock. Billions of dollars have gone into the development of Afrezza. After the last attempt the inhaler was scrapped and that part started over from scratch. Now, with the delay, there is uncertainty as to how much cash they have left. And two failed attempts at FDA approval are added now to a delay on the third attempt to reach a sum total of Uncertainty. After all, nowhere is it written that the FDA action will mimick the ADCOM votes.
But those ADCOM votes are precisely the reason why the uptrend is so strong. Face it: 27-1 is about as good as anyone could have expected. To many investors, including me, it seems a given that approval will come. You can see that conclusion in the price action. Every time shares have headed down they have been energetically supported by the established uptrend. The bulls have a strong opinion of this stock and have been voting with their wallets on every dip.
Shareholders are not very willing to let go their shares at current prices. There is always the chance that approval comes earlier than expected, or that a conditional partnership will be announced. If approval does come as an early surprise, MNKD will most likely rise quite considerably, and very, very fast. A conditional partnership would not have the same effect, but would still help to keep the stock buoyed through the FDA announcement.
If nothing of that sort happens though, time will begin to wear on holders of MNKD. Dreams of a clean double on a fixed timetable have been dashed already at least once, and for some more times than that. If it becomes apparent that the stock is following a declining channel stockholders may be tempted to sell, with the plan to repurchase before July’s date with destiny.
Bears Make Money. Bulls Make Money.
I believe that MNKD is in a short term decline within a long term uptrend. Recent tops and bottoms are clearly showing trading ranges that can be exploited. Prices should fluctuate by as much as 5% up and down, allowing astute traders several opportunities to profit along the way.
It is entirely possible that this decline results in filling the gap left at $5.75 sometime over the next two months. It is just as likely that the stock will rebound once again when it touches the established uptrend line. If it does break through the uptrend line it will nearly certainly fill the gap.
Disclaimer
Currently I have no position in MNKD, but have been long the stock several times as a medium term trader. I do plan to initiate a long position within the next two weeks, and continue to add to that position periodically as I see opportunities through July. I also must caution the reader to do your own diligent study of every investment you consider before entering any position. My opinion is just that, an opinion. I’m certain you have one of your own.