Elan (ELN)


"Elan is a neuroscience-based biotechnology company headquartered in Dublin, Ireland. It was incorporated as a private limited company in December 1969 and became a public limited company in January 1984. Elan's principal research and development, manufacturing and marketing facilities are located in Ireland and the United States." (company website)

ELN 4-month chart
ELN 1-year chart

Sell short

Elan beat Expectations when it reported earnings in October and was promptly punished by the market with a big sell-off. Since then it has clawed its way back to break above the chart trend line, but today's session opened down and has continued in that direction. My bet is that the down-trend will reassert itself, so I sold short.

  • Percentage price oscillator (PPO) — well above the signal line
  • Volume — since the sell-off, higher-volume days are successively not quite as high

Based on technical analysis, MarketEdge calls ELN a "short candidate" in a "strong downward trend," noting that it is "overbought" and at a "good entry point."

Buy to cover

gain Bottom line

ELN has behaved very strangely since I sold it short. The first thing to note is the gap between the PPO line and the signal line stayed absolutely even for 8 trading days, something I haven't seen since I've been using the PPO line as a signal. Second, it has traded very lightly in the weeks since I shorted the stock, way below the average volume.

eln(4-1)_level2 Note that there are bids for 77900 shares at $6.39, a remarkable convergence around a price.

Third, while ELN has been able to break above the 50-day moving average, it has had an equally hard time getting below $6.30. Every time in recent days that the price dropped to between $6.35–$6.40, huge numbers of buyers and sellers came out of the woodwork. I'm guessing that some big institutional investors have decided to load up on ELN at around that price, so when it drops, bids flood the market. Given the number of buyers at that price, it became very unlikely that the price would drop much below it, so I covered when I got the chance.