Why Buy and Hold is Dead

In this Market, buy and hold investing can be hazardous to your wealth!

Take for example, VirnetX Holding Corp (NYSE: VHC). Since July 13th, the stock has been as high as $40 and as low as $23.41.  Take a look at the chart:

Now if you bought in July at $40 and held it until Friday’s close ($30.10), you’d be down about 25% using a buy and hold strategy.  Our swing trading system looks for optimal entry and exit points based on option activity.  Investors often make positive (calls) and negative (puts) bets on the future direction of the company.  When we see unusual positive activity (call buying in large volumes), it gets our system’s attention.  I then dive in and see if there is an upcoming trigger event that could send the stock soaring (FDA approval, mergers and acquisitions, deals in the works, etc).

VHC is a stock that comes and goes out of our system.  It develops software and technology solutions for securing real-time communications over the Internet. The company’s software and technology solutions include domain name registry and GABRIEL Connection Technology, which provide security platform for Internet-based applications, such as instant messaging, voice over Internet protocol, mobile services, streaming video, file transfer, and remote desktop. On 9/28/12 our Renegade System rated VHC a BUY.  Here is our analysis;

“We bought VHC at $24.94. I see this one hitting $30 a share pretty quickly, which would give us a 22% gain. VirnetX Holding Corporation develops software and technology solutions for securing real-time communications over the Internet. We are seeing heavy call buying in the November 27s and above. VirnetX Holding announced that after a hearing at the scheduling conference requested by all the parties, the judge agreed to modify the trial schedule in VirnetX’s patent infringement suits against Apple, Cisco, Avaya and Siemens to allow for optimum use of resources for trial preparation while giving parties additional time to try to reach an agreement. Per the updated schedule, jury selection in the trial against Apple will begin on October 29, 2012 followed by a jury trial on October 31, 2012. Remaining defendants including Cisco, Avaya and Siemens are now scheduled for a jury selection on March 4, 2013. “We are extremely pleased with the updated trial schedule,” said Kendall Larsen, VirnetX CEO and President. “We believe this schedule allows us to maximize our resources and will greatly benefit our legal strategy.” We have a stop loss at $22.”

Over the next 4 weeks, the stock went from $24.94 up to over $31 a share.

On October 24th our system saw the option activity on VHC normalize so we knew it was time to get out.  Here is our sell analysis:

“We will be selling 100% of VIRNETX HOLDING (VHC). It hit our $30 price target for a 22% gain in under 4 weeks. We will sell this tomorrow and try to get at least $30 a share. The option activity has settled down quite a bit and we want to lock in our gain.”

We were able to get out at $31.09 on October 25th.  So with a entry point of $24.94 and an exit at $31.09, we made nearly 25% in 4 weeks. Not too shabby! This market is brutal and active trading can deliver huge gains while the markets continue to fall.  Not all trades are winners, but if you win more than you lose, you can CRUSH the market.  Here are results in our Renegade Folio trading account:

 

Though past performance is no guarantee of future results, you can see the system is up 45% year to date versus just 12% for the S&P500. The Renegade System this year is beating the market nearly 4 to 1 proving trading can outperform buy and hold.

Disclosure: This is not a recommendation to buy or sell any securities mentioned in this article. This is for informational purposes only. Performance is updated daily and assumes cash distribution reinvestment. Performance does not represent actual performance experienced by customers. No fees or trading costs are included in the reported performance because the Folios are model based. If an portfolio has less than one year of performance history, the Since Inception return figure is not annualized and represents an aggregate total return. Please consult a qualified financial advisor before buying or selling securities in your account.

 

 

 

Ziopharm Oncology (Ticker: ZIOP)

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Company: ZIOPHARM Oncology)
Ticker Symbol: ZIOP
Action: HOLD

3/11/13 Update… I will be allocating 10% to Ziopharm Oncology (ZIOP). HIGH RISK TRADE. Buy up to $5.30 and stop 20% below entry. ZIOP is a biopharmaceutical company focused on the discovery and development of new cancer therapies. The company’s portfolio is comprised of five clinical-stage product candidates in all phases of development, as well as multiple research-stage candidates. Of all the products, it is the palifosfamide program that is leading the charge for the company in the chemotherapy cancer arena. Investors’ excitement in ZIOP is starting to build based upon the upcoming Picasso 3 trails. Results will be released to the public during the last week of March 2013. This stock could hit $7-$8 leading up to the trial results.

10/31/12 Update… Sold @$4.75.  Option activity gone and downside risk is far too great.

10/27/12 Update… ZIOP had a lot of option activity last week, but the outlook is cloudy at best. I have raised our stop loss to $4.75. I am keeping this one on a very short leash, as there has been a ton of good and bad reports on its drug. Here is a very negative article: http://seekingalpha.com/article/954821-richard-pearson-responds-on-ziopharm?source=yahoo. I will watch closely and may exit on Monday.

10/25/12 Update… Bought ZIOP @ $5.04 per share.  Stop loss is in @ $4.

10/24/12 Our Analysis: It is a biopharmaceutical company, engages in the development and commercialization of small molecule and synthetic biology approaches to cancer therapies in the United States. We are seeing heavy volume on the Dec $6 calls. This is a high risk/high reward opportunity. Palifosfamide is a bifunctional alkylator developed by Ziopharm Oncology (ZIOP) for the treatment of a number of cancers. Soft tissue sarcoma (STS) is the most advanced program with pivotal phase III data expected before the end of the year. We will enter a stop-loss 20% below our entry price.
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Nektar Therapeutics (Ticker: NKTR)

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Company: Nektar Therapeutics
Ticker Symbol: NKTR
Action: SELL

10/31/12 Update… Sold @ $9.  Stock still showing some option activity but downward trend is concerning. Will move on for now.

10/27/12 Update… We continue to see real good volume on the Nov and Dec $10 calls. We entered at $10.40; I am raising my stop loss on this to $9. If it breaks $9 I will exit.

10/20/12 Update… This company is a clinical-stage biopharmaceutical company, engages in developing a pipeline of drug candidates that utilize its PEGylation and polymer conjugate technology platforms.We continue to see real good volume on the Nov and Dec $10 and $11 calls.   We entered at $10.40 and have our stop loss in at $8.30.  This is a good article to read up on NKTR: http://finance.yahoo.com/news/nektar-presents-positive-preclinical-data-130000947.html

10/18/12 Our Analysis: I will be allocating 10% to Nektar Therapeutics (NKTR) tomorrow. Buy up to $11. We will put in a stop-loss 20% below our entry price. Nektar Therapeutics, a clinical-stage biopharmaceutical company, engages in developing a pipeline of drug candidates that utilize its PEGylation and polymer conjugate technology platforms. We are seeing a spike in the Nov and Dec $11 calls after they released preclinical data for NKTR-171, a new investigational drug candidate to treat neuropathic pain, was presented at the 41st Annual Meeting of the Society for Neuroscience: Neuroscience 2012. NKTR-171 is a novel sodium channel blocker designed to act in the periphery in order to treat neuropathic pain while avoiding the serious central nervous system (CNS) side effects associated with current therapies, including anti-epileptic and anti-convulsant medications, such as gabapentinoids.

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Aegerion jumped 53% in Just 14 Days

Aegerion stock (AEGR is up 53% in just 2 weeks. To put that in perspective, every $1,000 invested in Aegerion turned into $1,500 or more!

Check out the chart:

 

Aegerion Pharmaceuticals, Inc., (NASDAQ: AEGR) is a development stage biopharmaceutical company, engages in the development and commercialization of novel therapeutics to treat debilitating and fatal rare diseases.

The Stock Few Had Heard of

Now here is the interesting part of the story.   Our Renegade system identified unusual option activity on Aegerion in early October.  I then allocated 10% of our Renegade portfolio at Folio Institutional to AEGR.

I was able to buy AEGR on 10/4/12 at $14.25 per share.  The next several days for AEGR were interesting:

Closing Prices:

October 4th: $14.25

October 5th: $13.99

October 8th: $13.97

October 9th: $13.86

October 10th: $14.17

October 11th: $13.98

October 12th: $15.96

October 15th: $17.46

October 16th: $19.15

October 17th: $19.15 No Trading – Stock Halted by Nasdaq (pending FDA comments)

On October 17th, there was BIG news on Aegerion’s new cholesterol drug:

http://www.bloomberg.com/news/2012-10-17/aegerion-drug-wins-panel-support-for-cholesterol-disease.html?cmpid=yhoo

The positive FDA comments sent the stock skyrocketing! Here we were just 14 days into our AEGR trade and we were up 53%.  I was happy with the gain so I took gains off the table.  The stock was up 53% at $21.75.  I didn’t want to be greedy.  I  pulled the trigger and closed out the trade with a 53% profit!

The stock closed the day at $20.94.  The high of the day was $22.63.  Once again, using the Renegade system I got into AEGR before many knew about it and  got out near the peak. When was the last time you made 53% in just 14 days?

Now is the time for you to experience the power of the Renegade System first hand:

http://wallstrenegade.com/subscribe

Disclosure: This is not a recommendation to buy or sell any securities mentioned in this article. This is for informational purposes only. Performance is updated daily and assumes cash distribution reinvestment. Performance does not represent actual performance experienced by customers. No fees or trading costs are included in the reported performance because the Folios are model based. If an portfolio has less than one year of performance history, the Since Inception return figure is not annualized and represents an aggregate total return. Please consult a qualified financial advisor before buying or selling securities in your account.

 

NPS Pharm Soared 33% in less than 60 days!

We just booked a 33% gain in less than 60 days! 

By Jay Peroni, CFP®

I love charts!  Pictures are worth a thousand words, right?  Take a look at this chart:

On August 22nd, the Wall St Renegade System put NPS Pharmaceuticals (Ticker NPSP) on our radar list as it was showing unusual option activity.  Though the stock was trading around $7.75 a share on this day, speculators were buying the Sept and October $9 calls.

Sometimes investors will purchase a call contract rather than buying the underlying stock.  It can be a cheaper way to speculate as each call contract controls 100 shares of stock and it typically requires less capital up front.   A “call” contract gives the owner the right but not the obligation to buy the stock at the strike price up until the expiration date.  So in other words, investors were paying a big premium to lock in NPS Pharmaceutical stock at $9 even though the stock was selling for $1.25 per share less.  This caught my attention.  Why were investors speculating?

As I poured through the news, I saw this tad bit of info:

NPS is advancing two late-stage registration programs. A New Drug Application is undergoing FDA review for Gattex (teduglutide) as a treatment for adult short bowel syndrome (SBS) and a Phase 3 registration study has been completed for Natpara (recombinant human parathyroid hormone (rhPTH [1-84]) in adult hypoparathyroidism.”

So I determined it had a couple of drugs up for FDA approval.  I LOVE these types of companies…  Investors bid up the price of a stock in anticipation that the company gets the FDA’s stamp of approval. I have done quite well with these kinds of trades so again this made it to my short list of stocks to consider.  After digging around a bit more, checking the company’s fundamentals, looking at its stock chart, I saw a good entry point at $7.82 per share.  So on August 22nd, I issued a BUY alert to buy NPSP up to $9 a share (where the option activity was taking place).   It took about 30 days for the stock to hit my maximum entry price of $9.  This gave us a 15% gain in less than 30 days.

On October 5th in my weekly update to subscribers, I wrote the following about NPSP:

“NPSP had a decent week last week increasing another 2%.  This is still above our $9 entry price. The option activity is still strong for the Nov $10 calls.  We could get another 10-20% of upside…”

I saw more potential as investors kept flocking to higher priced call options on NPS Pharmaceuticals.  Then on October 12th the stock made a HUGE move advancing 19% in one day closing the day at $10.86.   My original target for the stock was $11.50 but with a 36% gain in less than 60 days I didn’t want to get too greedy.

Today (Oct 15th), I watched NPSP on the open to see if we could get a little more strength going into the trading session.  However, there was quite a bit of profit taking.  The stock started trending down as it moved toward $10 a share.  As the stock started to gain a little more momentum, I knew the risk to reward was no longer in my favor.  The stock COULD hit my target price or could drop like a rock if they don’t get FDA approval or any negative news came in.

I always ask myself, “Will I regret missing some of the upside or will I be more upset if I stay in and the stock gets crushed?”  I checked our Renegade reading and the option activity was mixed…  No clear signal on whether this stock has more in the tank or at the end of the rope.  So I had to make a judgment call on this one.  Take my 17 years of trading experience and go with my gut.  Here is what I came up with:

“I was hoping we would get a little more bounce from NPSP this am. The stock is seeing some downward pressure and I don’t like the risk/reward at this point.   I am going to be selling 100% of NPSP.  We are up over 30% right now and I feel comfortable with this gain.  YES, we could make much more if tomorrow’s ruling is favorable, but this is not a given.

The option activity right now is showing a mixed result.  We have some speculating on the downside of the stock and some on the upside.  There is no clear winner in the activity at this point and I don’t want to get too greedy hanging on to try to sell at $11.  I would rather book the 30% profit today and leave some potential gains on the table.  I think the market has factored in a FDA approval and if any negative info comes out tomorrow there could be plenty of downside.”

We sold at $10.42 making a 33% gain in less than 60 days!  NPSP could have a big day tomorrow, but I will sleep much better locking in the gain now then potentially losing if the stock hits a bump in the road tomorrow.  If the stock surges tomorrow, there’s no second-guessing “what if…” because I feel comfortable with what we made in such a short time frame!

Some weeks have been incredible where we make double-digit returns like 2 weeks ago where we were up 13% for the week!   You have to be prepared for winners and losers.   The system isn’t perfect, but it is unlike anything I have ever seen in my 17+ years of trading.  We will have some great weeks in the days and weeks ahead as long as we stay focused and disciplined in how we approach our trades.

Disclosure: This is not a recommendation to buy or sell any securities mentioned in this article. This is for informational purposes only. Performance is updated daily and assumes cash distribution reinvestment. Performance does not represent actual performance experienced by customers. No fees or trading costs are included in the reported performance because the Folios are model based. If an portfolio has less than one year of performance history, the Since Inception return figure is not annualized and represents an aggregate total return. Please consult a qualified financial advisor before buying or selling securities in your account.