The Danger and Profits of Biotechs

I get on average 50-75 emails a day from members, I try to work with individuals and many long term members I know pretty well so I know their habits, the kind of trades they like and it helps me help them.

One of my longest term members recently asked me about CLSN on January 22nd. This was my response...

"That recent top on 1/15 looks rally dangerous, that was real. Short term it looks to have a decent chance to add from here a bit, but I'd be really careful in the area of 1/15.

I might get some charts of it up."

Today CLSN announces...

" ThermoDox in combination with radiofrequency ablation (RFA) did not meet the primary endpoint of the Phase III HEAT Study in patients with hepatocellular carcinoma (HCC), also known as primary liver cancer."

These bio-techs are dangerous for more than 1 reason, I'll tell you more after the charts...

 If you have trouble believing there's hanky panky in the market still, take a look at this chart. 3C was confirming price action in green, running in to the 1/15 top, there was a fast change in character and it went from confirmation to distribution. The trials were announced today, but they likely didn't just end yesterday and those conducting them probably had a good idea of what was happening and how things were going.

I just published a story about a local man in my area giving out insider information on a bio-tech company for $35,000 and a new wood dock for his jet-skis, the recipients of the information made money, this guy is looking at 5 years in jail. Here's the price action today

A -80% 1-day drop.

Quickly let me just tell you one of my own experiences with a biotech. Back when all I did was trade full-time for a living, I had been doing some trading with my buddy DavidDT who many of you know. We were long some biotech that was due to get an FDA approval or denial letter the next morning, I can't recall the name, but it had closed around $10.

We were in the habit of posting sell orders higher than the close just to see if we could catch someone who wasn't paying attention and we could make a quick +10% in this case on another trader's mistake in after hours by not paying attention to the bid/ask and placing a market order when our ask was up.

David called me and had his ask set lower around $10.50, some people would set these at $.01 bid and $1000.00 ask which was crazy, we didn't go that far as a lot of those orders got cancelled if filled. David told me someone snapped up his shares and was flashing 5k share blocks on the bid in a smaller biotech in after hours, I lowered my ask to $10.75 or so on half the position and half my shares got hit  at that price, then I watched them take out a bunch of smaller 100 share blocks , I sold the other half a bit higher.

The trick here was the flashing of bigger buy blocks, but never filling them and hitting a bunch of smaller blocks so the after hours price jumped up by 10% or so which caught the attention of other traders who all thought there must be a leak out regarding the FDA letter that was positive so all these traders rush in and start buying like mad, volume shoots way up and the stock closes up for the session.

Th next morning the FDA letter is revealed, it wasn't an approval or a denial, but a letter saying they needed more tests/data and the stock was cut in half from the previous day's close.

What happened? That initial buyer who got our shares and was flashing big blocks on the ask and pulling them before they were filled was getting everyone's attention, everyone figured the fix was in, good news was coming and they were buying. The volume was huge so whoever bought our shares knew that night that the FDA letter would be a negative and they had to unload their position, so they created demand by buying some shares to get the price jacked up and traders thinking they had an inside line, those same traders who bought all the shares from this one big seller (initially the buyer) lost more than half their money the next morning.