Buoyant Biota Holdings (BTA) Regains Lost Ground
I did a series of analyses on the Australian biotechnology company Biota Holding last October/November and started buying around that time. Since then Biota momentarily dipped slightly before moving considerably higher. Biota closed up 8% on Wednesday at $0.65, after hitting an intra-day high of $0.68. Volume was double the average at 550k after trading more than 1m shares on Tuesday.
The following chart is a great example of why you should consider adding moving averages to your investing toolkit. It is also a fine example of why to not rely solely on technicals. Investors can enhance their performance combining fundamental and technical analysis, taking the best from both approaches.
Using a simple moving average approach of investing when the 50 day moving average crosses above the 200 day moving average, a golden cross, and selling when the 50 dMA cross below the 200dMA, a ominously titled death cross, would have allowed an investor to profit handsomely from Biota over the last four years.
So why did I recommend investing in Biota last November when the share price was trading under both moving averages and the 50dMA was trading under the 200dMA? That’s where fundamentals comes in to play and why being able to look beyond a chart can give fundamental analysts an advantage. I recommended buying Biota as my analysis showed there was virtually no permanent medium downside risk. Biota was trading at cash backing and had a marketed drug providing cash flow plus a reasonable pipeline. Relenza, their flu drug marketed by GSK, albeit poorly, and the pipeline were being afforded no value by the market and that made no sense. I looked past the recent problems most investors were focuing on and saw an excellent risk return picture and many possible catalysts. Classic variant perception, it’s nice when it works, but please don’t mention Syntax Brillian. 
The three month chart for Biota looks fantastic for the bulls. The share price moved up through the 50 day MA and then after a couple bounces down to the 50dMA pushed higher up through the 200dMA. Now with a retest of the 200dMA the share price has again moved higher and trades above both moving averages. The shares have been under accumulation and with the supply of cheap shares exhausted buyers are likely to continue pushing the share price higher.
The next key point for technical traders will be a golden cross, when the 50dMA crosses above the 200dMA. Many technical traders wait for confirmation based on key indicators like a golden cross or a retest of the 200 dMA, before going long. Often moving averages need to be accompanied by other indicators, but for our purposes it is enough to simply be aware of the moving averages.
While most technical indicators like stochastics are of no real value, except for their influence resulting from being followed by so many technical analysts, I have found moving averages to be an excellent unemotional aid in my investing. I mainly use them for downside triggers, prompts to double check my analysis and to get out of the way unless I am extremely confident in the story and my analysis.
Share prices do not move for long in a vacuum and in general reflect the news flow. In the case of Biota the news flow has been great over the last 3-4 months.
- Tamiflu, the main competitor to Relenza, has become ineffective against a major strain of flu and Avian flu.
- Daiichi-Sankyo exercised the right to market LANI (CS-8958) in Japan.
- A new Chairman was announced, which along with a new director somewhat placated disgruntled investors.
- The half year results were better than many investors were expecting, including a strong cash position.
- New orders and stock piling for Relenza were announced.
My crystal ball is still broken so I am unable to offer an opinion on where Biota’s share price will go from here in the short term. However, with the recent strong gains on large volume and excellent news flow the path of least resistance appears to be higher. There is the possibility of a lot of good news flow over 2009; LANI results are expected mid year and more large Relenza orders are probable. The current price does appear to offer considerable upside and three recent analyst reports all list Biota as a buy with valuations of $1.55, $1.11 with target of $0.75 and $1.15. Investors should be mindful that Biota is a small biotechnology company and expected good news can quickly turn out to bad news. At current prices Biota has moved from being an excellent value play to speculation.
I am long Biota shares and expect to hold throughout 2009.
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