MELA - A Speculative Opportunity

[Homem do Protocolo]

Uma acção que acompanho há algum tempo e mencionada em alguns serviços de stock picking recentemente.

Artigo publicado hoje num serviço reservado a membros:

---------------------------------------------------------

Electro-Optical Sciences, Inc. (MELA)

The Plan
Over the weekend we gave you an early insight into a great speculative opportunity. Well here are the details.

Profile:
Electro-Optical Sciences, Inc., a medical device company, engages in the design and development of a non invasive, hand-held imaging, and point-of-care instrument to assist in the early detection of melanoma in the United States and internationally. The company's principal product, MelaFind, features a hand-held imaging device that emits light of multiple wavelengths to capture images of suspicious pigmented skin lesions and extract data. The data is then analyzed through its proprietary database of melanomas and benign lesions to provide information to the physician and produce a recommendation of whether the lesion should be biopsied. It primarily serves general dermatologists, plastic surgeons, and primary care physicians. The company was founded in 1989 and is based in Irvington, New York.
Market Cap: $140M
Sector: Healthcare
Website: www.eosciences.com

Trading Idea:

Technical Analysis:

Technically the chart looks beautifully primed for continuation. A series of volume backed breakouts followed by lower volume consolidation have been a feature of this stock since back end of March. The most recent breakout pierced all time highs on biggest volume yet and has consolidated by time not price just above that all time high breakout level. You can't ask for much more than that from a technical layout. Notice also that volume whilst growing and OK from a liquidity perspective still has not reached levels whereby a wide audience of traders have been exposed to it, meaning more exposure WILL give even greater forward momentum.

Fundamentals:

MELA has a revolutionary product which in around 6 weeks time will gain FDA approval. That product is MELAFIND, a non invasive skin cancer screening product (see the picture below, looks a bit like a hairdryer!!). Detecting skin cancer is a huge and growing area. I live in Australia and really it is a subject mentioned nearly every day. When MELAFIND gets FDA approval (and leading up to it). I fully expect it will be trading MUCH higher than the current price level and with much higher volume as the wider investment community gets involved.
A couple of small analysts are following it and I attach a research note below, basically they have no revenues to speak of as they are finalizing the development of this product, so bear that in mind when looking at the report.
Now, MELA is doing the rounds in terms of being recommended by a certain investment service that have a great long term track record of finding and profiting from many different scenario's. That service is a subscriber based service and not a general public access one, so we are not alone in looking at this one.

Medical stocks with pending FDA approval......hmmm indeed speculative, high volatility, news dependent, subject to pump and dumps, what if the FDA says no etc. Also the stock has doubled since end of March, no doubt fuelled by those in the know taking their speculative positions.
For 2 years prior to that it has been in decline because it was in development stage, not many people want to park their $ for 2 years whilst a product get developed. All that said, I think this set up has a hugely positive risk to reward possibility which we cannot ignore.

We want to participate in this type of speculative play, but at the same time limit downside risk. So the proposal will be to enter in two positions using 50% of normal position size each. Position one; buy at or around the open today. Position 2; set a buy stop entry at $9.95 (just shy of the $9.99 high) to get us in if and when this does start to run again. Thus we will have a full position once breakout occurs.
No stop or target will be set just yet, that would be counter productive to trying to gain access to the full outcomes of this position. We will update that as the trade starts to devlelop.

Trading Plan:

Position 1; half position at or around market open
Position 2; half position using a buy stop order $9.95
If the market gaps open above $9.95 today take a full position