Viking Systems Inc VKNG Breaks Out 60 Percent Today

I first mentioned Viking Systems Inc VKNG at BestOnlineTrades way back on August 9th and 11th, 2010 (seems like eons ago 🙂 ).   At that time this penny stock which trades on the OTC BB was trading in the .30 cent range.  Today Viking Systems Inc came out with news and the stock closed near the highs on a huge surge in volume.  It created a near perfect marubozu candlestick showing clear demand opening and final close of the day strength.

In my previous analysis I took the stance that VKNG falls more in the category of a position trade with maybe a 3 month to 1 year hold time frame.  Perhaps it is worth holding longer than that time frame depending on how well the company executes.  I am viewing this as a longer term position trade (I currently own shares and plan on adding on any dips in the weeks ahead) because what we have here is a company still undiscovered in the incubation stage but on the cusp of launching a new and perhaps very significant product to the medical community (during early October at a major medical conference and then planned selling for last quarter of this year).

The product allows surgeons to do minimally invasive surgery with a 3D HD vision system as opposed to the more common and currently widespread 2D.  My understanding is that all current minimally invasive surgery vision systems only use 2D. 

Introducing a new product at a major medical conference with thousands of surgeons has the potential to be very positive for a company introducing a new product to market.  I suspect that Viking Systems Inc. will get some buying demand into the stock as a result of that conference.  But after all that excitement dies down, the real meat that is likely to drive the stock price substantially higher are SALES.  Not just the occasional sale here and there, but a consistent ramping up of sales.

Of course that will take time, but the opportunity seems intriguing.  VKNG indicates that there is a potential 2 billion in annual sales potential for their product.  I believe they aim to get 5% of that or about 100 million a year in sales.

The stock has a tiny float and a low current market cap.  If VKNG can execute this business model and start to develop real sales world wide, I think the stock is going to have some amazing upside long term potential, in addition to the possible future benefit of being bought out by a larger medical device company.

From a fundamental standpoint I have not done enough due diligence to know whether or not there is enough incentive or motivation for hospitals and surgeons to throw out their current 2D surgical vision systems and go instead for the 3D HD VKNG system.  If you go to the VKNG website and read their investor presentation and press releases you will see a lot of testimonials from surgeons who believe the product is superior.  But again, positive testimonials from surgeons are great, but that does not necessarily translate into cold hard sales of new systems which run somewhere in the $100,000 range.

It would be great if I could see a 2D system and a 3D HD system and then do a side by side comparison to see if there is incentive enough to switch over to the new system.  Perhaps with some more due diligence I can get a better idea.

Intuitive Surgical, Inc ISRG is currently the 100lb gorilla in this market space and currently has a 10 billion dollar market cap.  That stock has had an enormous run from about 8 dollars to 350 at its all time highs.  Clearly the medical device market is a very large market space with a customer base that tends to have deep pockets.  There is some speculation on the Yahoo Finance VKNG message boards that VKNG would be a buyout candidate by ISRG at some point.  This seems to make sense.  But it also makes sense that the two of them partner together somehow.

What first got me interested in VKNG was the price chart.  The price chart has some interesting long term dynamics that leads me to believe it should be able to at a very minimum test the 1 dollar range again and very likely exceed it perhaps eventually as high as 7 dollars.  I am not just picking out those numbers at random.  They are resistance and support levels that I believe are achievable based on the way the chart is structured.

VKNG has a long trading base and a long swing trading range that is well defined. It spiked to 1.00 range before on very heavy volume.  This is the first clue that tells me we will revisit 1.00 range as those highs need to be tested again.  That is where all the previous demand was.

VKNG has a nice weekly long term chart because there are many tradeable voids that should allow the stock to travel freely once resistance levels are cleared.

The 1.00 range is the most significant one in the nearer term.  But assuming a successful northward break of that resistance line, the next resistance comes in at 3.5 and there is very little left side resistance between 1.00 and 3.5.  The tradable void between 1 and 3.5 is picture perfect in my opinion.  If 3.5 is overtaken then 7.00 to 7.50 is the next major resistance range.

There are all kinds of factors that may halt the stock price before it reaches the above targets, but for now I am just trying to get a feel for what the potential is.

Today’s big upward spike will likely get sold off eventually.  I am thinking that the large opening gap today will likely get filled as well.  It is rare to see such large opening gaps on OTC BB stocks.  I can’t say for sure if it will get filled or not, but it seems likely.  The timing of the October conference only leaves about 15 to 19 trading days to get the gap filled.    I am not sure if that is enough time to get the job done.  I suppose there is an outside chance this gap remains as a breakaway gap.  We should have a better idea by the end of next week.

VKNG should definitely get some type of retracement going in the days and weeks ahead.  Exactly where it finds support is going to be key for how the price evolves into October.

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The weekly chart of VKNG above basically paints a picture of a stock that has suffered a long bear market decline for many years.  Then a change of ownership occurred.  After that we saw a big sign of preliminary demand in 2009 on very high volume.

The stock settled back down again and was likely accumulated again.  Now it appears to be entering the mark up phase which should transpire over the course of the next 3 months to 1 year.

95% of my interest in VKNG has to do with the technicals and the long term chart.  The fundamental side is what I am less clear on, but can see the potential from what I have studied so far. 

This is a fast moving stock that tends to make quick and sharp spike highs and then transition into slow moving bases.  The best scenario for VKNG will be to get a northward breakout above 1.00 that is strong enough to create a new support level at the 1.00 range.  From there, a new base could be built that takes the stock into some possible higher targets much later in the stocks life cycle.

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