Special thought on $TRXC >Battle at the sub-$3

CAVEAT! As in all posts I wrote in this blog, my thoughts are my personal trading journal I chose to share for entertainment purpose only.  I also included theories of how I believe the market work based from my observations and is not necessary reflection of true market action.  I hold no attachment to my theories and won’t defend them.  As long as my theories help me flow with the market, I will embrace them as part of my trading repertoire. 

Here goes…

There is something about the $3 dollars that the shorts do not want the price to cross or stay above too long.

Why?

My take is that once price goes over $3 buck and stay there, the path to $4 and above becomes much easier.  It has the least resistance to go from $3 to $4 to $5 then it is to go from $2 to $3.  As long as price stay below $3, it is easy for an attack article to call this an overvalued penny stock.  Recent article from White Diamond Research (WDR) did exactly that.  Out of the blue, it waved a research result in front of us and proclaimed “Da Vinci doctors don’t like Senhance. Not many will buy it. Stock will drift towards $0.”

Perplex would be the word I would use to describe the reaction to this attack piece.

I counted seven doctors in the articles, three were not so positive and four not familiar with Senhance.  The fact the surgeons who replied are Da Vinci users did not add to the neutrality of the report.  It’s like asking a loyal Cadillac owners what they think of the Mercedes Benz.  Imagine the response below:

“The Mercedes Benz feels very heavy, the steering wheel is harder to turn than the Cadillac. In the Cadillac, I feel like sitting on a very soft comfortable and bouncy armchair and the Mercedes Benz seat feels kind of hard.”

Now, the above may as well be very true because the two cars are totally different in design and have their own characteristics.  Mercedes Benz owners LOVE the heavy feeling (“It’s like driving a tank! Love it!”), the firm control of the steering wheel, and the firm seat which gave them feeling of stability.  Now can you imagine an attack article proclaiming that no one will buy the Mercedes Benz based on two feedback from Cadillac owners similar to the responses above?

Btw, Senhance, like the Mercedes Benz, is designed for a different crowd- the laparoscopy crowd.  So my 2 cents is that it’s pointless to ask the loyal and heavy Da Vinci users what they think of Senhance as it is pointless to ask a Cadillac lovers what they think of the Mercedes Benz.

To spend more time discussing the WDR article would be giving it too much importance.  So I’ll summarize my 2 cents with an analogy.  A high school senior submitted a quick & dirty research and got a big red “F” back from the teacher with a remark, You got only 2 usable quotes out of how many emails & phone calls?  What do you mean between 100 and 200?  Did you even send the emails and make those phone calls?  Come see me with proof of your work if you want me to reverse your failing grade.”

Despite such obvious bias stance in the WDR article, market took $TRXC down the hill anyway.

How could that happen?

Here is what I think.  There are plenty of whales out there swinging and day-trading this stock.  When a hit article came to light, that was all they needed. They would care less if the report was true or not. They knew the shorts were on the attack and they wanted to join the party.  On top of that, swing traders who were already long weren’t going to sit and watch, they wanted to get out too. And once the selling get going, the algo took notice and zoomed right into the action and tried to jump ahead of the crowd in supersonic speed. Before you know it, you got an avalanche of sell orders hitting all the huge bids.  If you have level 2, you could see how quickly those huge bids disappeared in front of you.  It was like watching an odometer running in reverse as a quick pace and the 700 bids went from 600 to 500 to 400 to 300 to 200 to 0 in matter of a minute if not seconds.  The affect would scare the hell out of any one who were not prepared for this type of high speed and furious attack.  It also created fear that perhaps the attack article had merit.  Bingo!  The shorts’ mission accomplished.  This could cause panic among other holders who were still deciding if this stock was worthy of being a long-term hold.  Not to mention the article came at a time the broad market was going through a correction. All the stars were aligned for the shorts’ game.  As for myself, on Tuesday, I sold the trading shares and bought them back later in the same day.

Here’s the rub, TRXC only received FDA clearance less than a month ago so there is still a lot of work to be done to generate sales.  And the long sales cycle of four to six quarters only add to the uncertainty.  However, accelerated adoption could dramatically change the landscape for this company.  Thus for a bear attack to work, they must act now before proof of accelerated adoption becomes reality.  In a manner of speaking, TRXC is in a sweet spot for bear attack.

At this point, proof of early adoption is the ticket for $TRXC to resume its upward momentum.   A continuing stream of Senhance sales during 2018 would do the trick.  But for now, NOBODY, not even WDR, can see into the future.  All we have now are the following:

  • Per CEO, there are LOT of interests from surgeons and hospitals’ executives checking out the Senhance at the two facilities with the Senhance robotic system.
  • Belief that the laparoscopy community of surgeons will embrace the Senhance surgical robotic system because of its advantages
  • An FDA clearance provides incentive for foreign countries to view Senhance as an alternative to Da Vinci.

Whether the strong interests alluded by the CEO will turn into early adoption sales is the RISK the investors of $TRXC have to bear.

Apparently, Landenburg analyst, Jeffrey Cohen, “believes that Senhance’s positioning and attractive recurring economics could offer accelerated adoption”

TRXC_Adoption

Most startup companies have to go through this phase.  A perfect example would be Tesla.  Until the company announced they sold a surprise number of their Model S in 2013, the stock was quite volatile after the Model S was introduced in June 2012.  And so will TRXC until they announced more sales.  Remember this is a stock market so it’s ain’t easy peachy no matter how much confidence we have in the company we invested in.  There is always risk and we must respect this risk when investing.

Having said all of the above, I was surprised that CFO sold his shares this week.

TRXC_CFO_sales

CFO Stock Sales
Sold Avg $ Amount
11/14/2017 333,000 $2.93 $975,690.00
11/15/2017 110,000 $2.59 $284,900.00
11/16/2017 86,609 $2.56 $221,719.04
529,609 $1,482,309.04

From the timeline above, I could deduce that the 333K block was sold before the WDR article came out later in the day since the average cost was near the $3 wall. What baffled me was that more shares were sold AFTER the WDR article.

When CEO sold shares, I was willing to look the other way ’cause he earned it.  The company received FDA clearance after all.  But when CFO sold shares near the $3 wall, I took it to mean a few things:

  • He is giving investors a head up that the road ahead is not an easy path so invested with caution
  • He is trying to tell the investors to “cool it” and let the business unfolds to warrant a higher stock price
  • He wanted to get his money back from his early investment in TRXC

That is my interpretation of his stock sales. As a result, I decided to sell all my trading shares and reduced my core position as well.  If the CFO is reducing his exposure, I am not going to risk a large amount of my capital on it either.

But you were so upbeat in your previous posts!

I’m still positive about the company except that I lost my appetite to swing-for-the-fences at the moment.  To me, insiders sales is a risk barometer I need to respect.  If insiders are buying, it lowers the risk.  And when insiders are selling, it increases the risk. But that’s just my interpretation; so take it with a grain of salt.

To sum up this week thought, the battle at sub-$3 will continue on with market force deciding the appropriate fair market value for a company that has an FDA clearance for a surgical robotic assistance in a market dominated by ISRG for the last 17 years.  The shorts and the doubters are screaming overvalued per traditional metric and the forward looking investors are screaming undervalued per its massive potential in winning over the laparoscopy market.  As of now, I see price will either drift higher or lower depending on how many early adopters sign on to buy the Senhance surgical robotic assistance.  The stakes are high and so is the risk.  CFO selling his shares is a reminder that this risk must be respected.

Good Luck and may fortune bless all $TRXC investors.

From my camera:

005

 



Categories: trading journal

5 replies

  1. Thanks for your insight and analysis on WD article. However, for CFO sale, I have different view. It seems like he needed $1.5M for some reason. He scheduled it following the U.S. sale. I believe he was expecting price $4.5 per share 333,000@4.5=$1.5 Million after the U.S. sale. Since the price dropped because of WD article, he had to bail another 200K more to cover the value. It was a bad timing for him. Nothing else.

    • Hi Stereo,

      Thanks for your view on the CFO sale. It’s possible you’re right about the $1.5 million cash; it made perfect sense explaining his selling the extra shares to get to $1.5 million.

      Thanks for your comment!
      Cheers!

  2. Also, check the last lot 86,609 on 11/16/2017 is not a round figure. He sold @ $2.56.

    • Good point. It does seem to support his intention to sell enough to get the amount close to $1.5 million dollars he needed. Thanks for pointing it out.

      Cheers!

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