Technical divergence to be resolved upwards?

COMPELLING FUNDAMENTALS
With a strong buy recommendation from the consensus and a 55% target upside, this stock looks fundamentally compelling
The company has average revenue growth of 11% with an R.O.E. of 9.25% and an undemanding valuation (P.E. 12x, P/BV 1x)
The pharma sector might also provide interesting exposure, if the market decides to take a breather from its historical high

TECHNICAL DIVERGENCE FURTHER TO EARNINGS DISAPPOINTMENT
The stock traded down on heavy volume post earnings: A clear disappointment
It has not breached the long term support at 50, however, and is still trading near it
RSI is still recovering from oversold territory and is contradicting the negative MACD signal
There seems to be a high probability of this divergence being resolved to the upside, with the 50 support as a back-stop

PLAIN VANILLA REWARD/RISK: 4.13X
Buy at the market: Reference price 53.10
Target price 58.00 (+9.22) then 66.00 (+24%)
Stop-loss 50.00 (-5.8%)

HIGH REWARD PUT STRATEGY
Sell 20Jan'17 $50 put at 2.40/share (indicative) --> 4.52% yield in 49 days = 33.67% annualized
Risk = Having to go long at the significant 50 support

Note

Defensives and particularly healthcare underperforming the current global market rallye. Stay long. Keep stop loss at 50.

Note

Stop-loss breached marginally in insignificant volume during a very quiet market. Long investors should keep their position a little longer until the down trend becomes clearer.

Note

MNK has been TRUMPED!! Down heavy on good volume, on the news that President Elect will initiate a bidding process for government related health procurements. HOWEVER, even this was not enough to take the stock sustainably below 50/share, which proves again its validity as a solid support. Technical indicators still positive. Continue to HOLD into earnings.

Trade active

Market consolidation and expectations of pharma pricing weakness during Trump presidency have taken this stock below our 50 support at the close of yesterday. Fundamentals remain solid, however, and we would really like to see what the earnings release has in store for MNK.

REVISED STRATEGIES:
1. Sell Current position and put on a credit options strategy as per below (point 3.);
2. Keep current position and SELL MNK 17FEB17 $45 PUT = $1.75 (ind.) to reduce entry price and pocket 3.54% in 30 days (43.08% annualized);
3. Credit options strategy:
SELL MNK 17FEB17 $45 PUT = $1.75 (ind.)
BUY MNK 10FEB17 $55 CALL = $1.50 (ind.)
TOTAL CREDIT = 0.25/SHARE (ind.)

Note

Shortly after issuing the revised strategies above, a piece of news came out concerning a 100m anti-trust settlement between MNK and the US government. The stock went crazy (down 18% at the lowest point) and ended the day down 5.85% at the close.

The settlement amount equates to 0.95/Share, which would leave the stock at 49/share (down $1 from the open) in a pure and perfect world. Market pricing, however, implied a settlement impact of c. 765m at the low of yesterday and c. 360m at the close, significantly more than is the actual case.

In the absence of further negative news, the stock should adjust to its new reality and the short-dated put-sale strategy would remain valid. Further comments/takeaways post company conference call today.

HAL9000

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HAL9000

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