ASX All Ords healthcare stock Immutep Ltd (ASX: IMM) is down by 26% over the past two days, and one market analyst reckons it’s a golden buy-the-dip opportunity staring us right in the face.
Immutep shares are currently trading for 32 cents, down 5.97% on Friday. The stock plummeted 47% to an intraday 52-week low of 23 cents yesterday after the company released topline medical trial results.
Now that I have gotten Motley Fools clickbait title out of the way it is worth looking at the difference between analysis and marketing.
The share in question is IMM which is shown in the chart below –
As can be seen, the past two trading sessions were disastrous. The reason for this is down to the market interpretation not necessarily of the results of the latest trial but rather how they were presented. The data was presented without a p-value. Whilst the utility of p-values is somewhat of a hot topic among somewhat obscure fields of statistics its absence means that someone reading the data from the trial is unable to tell whether the effect observed is down to the trial itself or is just a matter of chance. It is standard practice to include -p-values in such trials; its absence is a red flag. As used to be drummed into me from back in the day a p-value without a hypothesis is pointless and worse still a hypothesis without a p-value is useless. It means that anything you notice might just be a fluke.
It seems that an analyst from Wilsons took umbrage at this and said –
The market has yet again misread Immutep and (this) should represent an obvious buying opportunity.
It is here that we encounter a problem. The market doesn’t misread things – it takes the total of all knowledge and then votes on it. The market votes that without a p-value data from the trial is meaningless. So price responds accordingly.
The apparent misinterpretation by the market and subsequent repricing of IMM is regarded as a buy the dip opportunity. This is a misunderstanding of what buy the dip means – buy the dip refers to buying retracements within an existing uptrend. It does not mean buying the stock when the price has crated. A true example of buying the dip can be seen in the chart below of NVDA.
In this chart, you can see a variety of components – the green and red arrows represent new 20-day highs/lows, and the moving average represents a background trend so we know what the broader market opinion of NVDA is. The white boxes highlight zones where new buy signals occurred after a series of new 20 days which did not breach the longer-term trend. These boxes present retracement dips that can be bought with a degree of confidence. This is not the situation with IMM.
Additionally, Wilsons have put a price target of $1.13 on IMM this is a lift of 283% from Friday’s close. A word about price targets – they are guesses as such they are no better or worse than any guess you make. It is perhaps at this point I should explain the role of analysts within broking firms. The reality of broking firms is that your stockbroker (if you have one) is the sales arm of a marketing team. The marketing script is produced by the analysts. The sexier the script and its narrative the more chance the broker has of selling you on the idea and getting you to transact. Remember brokers are not paid on the success of your investments but rather on turnover.
Therefore, it wouldn’t read all that well if the analysts put out a piece to the desk saying – Look this stock is stuffed – a failure to provide evidence that the results were not a fluke is a worrying sign. Advise clients to sell.
This does raise the natural question as to why brokers don’t recommend that clients sell investments, after all, they earn a commission when clients sell. This is true but you have to have a client who is a shareholder to recommend selling to. You can’t recommend selling to a client who doesn’t have the underlying asset unless they are a sophisticated short seller of equities. From a business perspective telling people to buy is more profitable because later on you can tell them to sell. Although this rarely happens as clients are advised to switch – that way you generate two lots of commission and keep the process rolling along.
If I were to look at IMM from a technical perspective I would have noticed two things –
1 – Price failed to breach $0.48 on three occasions. You have a highly speculative share that is about to release encouraging results and the price falters. This is not normal behaviour – markets are leaky with information.
2- Price was already trending down – Thursday and Friday accelerated this.
3 – Volume was flat again this is not normal on this sort of stock. The chart below shows the volume on down days highlighted in red. As can be seen, there was selling creeping in earlier in the month.
The take-home point from this is the need to separate your analysis from someone else’s marketing. Analysis requires that you put your story to one side and examine what the market is telling you.
It will tell you everything you need to know if you just listen
Thanks Chris, this article is excellent. So many very valuable points well explained.