For most mutual funds, tax-loss selling must be done by the end of Monday. As a result, pressure could come off names that have had big downturns earlier this year. We are focusing on two stocks that are bumping up against resistance levels, and also have improving prospects after previously getting pummeled. Despite a good bounce off of its recent bottom, Questcor Pharmaceuticals (NASDAQ:QCOR) is still off 62.6% from its 52-week high. As a result, most mutual funds seeking to exit the stock for a tax loss this year are likely to have already exited the position. Fundamentals are looking up for the company, and our articles on QCOR’s improving outlook can be found here and here. Keryx Biopharmaceuticals (NASDAQ:KERX) is another stock that we recently began recommending, and the shares are also off from their highs due to one of the company’s late-stage drugs (perifosine) having disappointing Phase III results in April. In fact, KERX is off 43.7% from its 52-week high, despite staging a slow but steady recovery since May as value-seeking investors began recognizing the opportunity of the company’s other late-stage asset, Zerenex. Both QCOR and KERX are special situations relative to other stocks that have been smacked down earlier this year because their stories have new life and investors could bid them up for fundamental reasons over the next couple of months.
With QCOR, the company needs to demonstrate to the market that its primary value driver, H.P. Acthar Gel, will continue to at least maintain its sales base ($450 million run rate), and still grow as long as insurance companies continue to pay for the product. Favorable insurance reimbursement seems likely after the recent policy update from Oxford Health. With KERX, the shares are likely to continue to run higher into Phase III trial results for Zerenex, which are expected in several weeks. Based on other Phase III studies run by KERX and its Japanese partner, there is strong evidence that Zerenex should achieve positive Phase III trial results before year-end. Given this evidence, investors are likely to gain confidence in a good result as they dig into the story. See our analysis on the KERX opportunity here.
With both QCOR and KERX bouncing off of their lows, it’s clear that investor interest is building. However the heavy resistance indicates that some shareholders continue to sell into strength. Gapping up through the overhead resistance can be a key technical event, signaling that selling has stopped or significantly slowed. Near-term trading analysis for both QCOR and KERX are detailed below, and should the end of mutual fund tax loss selling have an impact, these stocks could move higher as the week wears on.
The near term resistance is from $22.26 through $22.75. The 20-Day Simple Moving Average (SMA) closed on Friday at $24.08 and will most likely open at $22.60 on Monday October 15, 2012. If investors can push the stock through $22.75, then $26.35 is the next target price. The MACD has positive crossover of the MACD line breaking up through the signal line, and the 14-Day RSI is at a $35.31, both bullish signals.
KERX has been a great looking chart for the bulls since the August 2, 2012 spike low, with a series of higher highs and higher lows along the way. Since that day, the price has been able to move above the 20-, 50-, 150- and 200-Day Simple Moving Averages (SMAs) on the daily chart. The stock is settling into some strong resistance at $3.02 as noted on the weekly chart below. If the stock can break through $3.02, the next major resistance point is $3.75.