This article orginally appeared on Mott Capital’s Blog
The past week saw the S&P 500 rise by just over one percent, and close the week at 2,549, Biotech’s and Technology names continue to run hot, and the FAANG’s are starting to run again too being lead by Netflix, while Tesla and Acadia came back strong by week’s end.
Tesla and Acadia Pharmaceuticals had a busy week, both coming under pressures from the short sellers. But stock managed to finish the week higher.
David Einhorn's Greenlight Capital returned -2.9% in the second quarter of 2021 compared to 8.5% for the S&P 500. According to a copy of the fund's letter, which ValueWalk has reviewed, longs contributed 5.2% in the quarter while short positions detracted 4.6%. Q2 2021 hedge fund letters, conferences and more Macro positions detracted 3.3% from Read More
Biotech and Tech
Biotechs surged this week past week with the NASDAQ Biotech ETF ($IBB) finishing the week up over 2 percent, while the Technology Select Sector SPDR ETF ($XLK) was up by 1.5 percent. For the year the IBB is now up over 28 percent, while the XLK is up by almost 24 percent.
The short tried hard to crack shares of Tesla ($TSLA)after the company announced surging Model S and X deliveries while falling short on the expectation of 1,500 units for its highly anticipated mass-market, $35,000, Model 3 four-door sedan. Tesla only managed to deliver 220 units, due to what the company called a “bottleneck.” But it should not have come as much as a surprise, considering Elon Musk made comments at the Model 3 debut about entering production hell.
The chart below shows the shorts tried to crush the stock taking the shares to $330, but the buyers came in mass and took shares of the stock higher, on a massive surge of volume. Shorts gave it there best try, but were unable to crack the stock, and is a perfect indication that Tesla is headed in only one direction, and it isn’t lower.
FAANG stocks saw a significant surge during the week, with shares of Netflix ($NFLX) jumping by over 9 percent after the company announced it would raise the price on two of its subscription packages. The stock broke out, surpassing its old technical resistance level at $190 and seems primed to continue to surge higher, closing the week at $198. The company is set to report third-quarter results on Monday, October 16, after the close of trading. According to YCharts, estimates are calling for third-quarter revenue to have risen by nearly 30 percent y/y to $2.971 billion, while EPS is expected to have surged by 164 percent to $0.32.
One has to think that Netflix saw something in its subscriber numbers from the third quarter to give it the confidence to raise its subscription pricing at this point of the year.
Amazon ($AMZN) shares also broke out during the week, with the stock appearing to make a run at its old highs last seen over the summer.
Alphabet ($GOOGL), also known as Google to many, jumped as well during the week and like Amazon appears to have broken out.
In Biotech, the story of the week is Acadia Pharmaceuticals ($ACAD) and the news they would be launching a Dementia-Related Psychosis Phase III trial. The company already has the drug, Nuplazid, approved for Parkinson disease psychosis, and is also running trials in Depression and Schizophrenia. The biopharma is looking to expand the label on Nuplazid (Pimavanserin) and its targeted markets are very large, giving the company very ample revenue opportunities in the future.
Acadia has been a stock with a very large short base for many years. Many shorts seem to doubt the efficacy or the need for Nuplazid. But the short’s seem to miss the bigger picture. The patients with Dementia-related psychosis are often very elderly and very sick. The current treatment options use off-label atypical antipsychotics, such as Seroquel or Risperdal, come with very severe side effects, where Nuplazid has fewer. Additionally, in a psychiatric condition, not all drugs work the same way for each patient. For example, it is entirely possible for a depressed person taking Zoloft to get an inadequate response but when switched to Cymbalta, achieve a positive response. The same holds true in atypical antipsychotics.
The stock gapped higher after the announcement of the trial, but the short sellers came in an pressed the shares lower. But the stock came roaring back into the close of Friday. The long’s could have called it a week and let the stock come in and finish the week lower. But the stock managed to recover its losses and ended the day and week higher.
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Michael Kramer and the Clients of Mott Capital own shares of Acadia, Tesla, Alphabet, Netflix
Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.