"Observation enhances opportunity."

-- Christina Nikolov

Malnutrition
by
Christina Nikolov, Founder / CEO ChartWatchCentral

Name/Tick

Name/Ticker: Martek Biosciences (MATK)

Date: January 2, 2003

Opinion: Bearish

Current Price: $24.73

Target Price(s): $18.40, then possibly $17.15 or lower

Commentary:

Over the past three months, Wall Street's prognosticators slashed their 2003 earnings estimates for Martek Biosciences (MATK) by 30%. Regardless, the shares are now 59.2% higher than they were three months ago and tout a p/e multiple of 71 based on fiscal 2003 projections.

MATK surged 110% between the August 5th low and the December 24th peak, then retreated a very modest 10% over the next five sessions. While the decline wasn't steep enough to reach any significant support levels, it did push the shares down to minor support near $23.30. On a bullish note, the 50 and 200-day moving averages are about to converge near $20.50. (chart #1)

These shares are now dangerously overbought on the weekly chart, while just starting to back off an overbought level on a daily basis. Coincidentally, the last time MATK was overbought on the weekly chart for this length of time (June 2001), the shares dove 50% within three months. (chart #2)

To profit from this anticipated decline, we suggest the June 30 put (Symbol: KQTRF), which is currently offered at $8.20. We like this security because the breakeven point is far higher than other MATK options, while giving you a very conservative six months window. Even though the March 30 puts (Symbol: KQTOF) are cheaper ($7.10), wouldn't you rather play it safe and allow more than two months for the trade.



Chart(s):

#1) Martek Biosciences (MATK) Seven Month Daily Chart

Click the Chart for an Enlarged View

#2) Martek Biosciences (MATK) Twenty Four Month Weekly Chart

Click the Chart for an Enlarged View