Friday, August 21, 2015

Indicators Are Lining Up For More Than Just A Correction

I generally don't try to time normal corrections in the market, but I get more defensive when more major tops threaten. Now is such a time. I've been dialing up defense the last couple weeks, and I think the sell-off of the last couple days may be intensified into September. I haven't had time to write much about this here on my blog, but I did publish an article How Afraid Should We Be Of The Margin Debt Climb over at Seeking Alpha. This was an exclusive article, meaning I can't publish it anywhere else, so you will have to go there to read it.

My basic point was that there are too many good predictors lining up for a crash to be business as usual. Coincident with that I am changing the Smartphone Index I keep here at the blog to cash, as well as the portfolio.

The market instability that's coming on could get pretty dangerous with a lot of it swirling around debt and currency issues, meaning it could quickly become "systemic" as it did in 2008. I noticed on Fast Money last night they were talking about the race to devalue (not just the China move recently) and how it all seems to have started this round on May 2014 with the ECB's blitz of money printing. I have never been a fan of money printing, and I wrote an article attempting to project where it could all go back in 2012 A Triangulated Forecast For June 2013 wherein I projected where the money printing trend would become dangerously unstable. I was seeing a gold price move up along with the printing that hasn't happened, but the printing blitz has also involved a gold manipulation blitz.

My 2013 article was basically about the likely outcome of a global debt reset sometime after money printing destabilizes. It has been destabilizing for the last couple years and now be the start of the "reset" involving much market distress beforehand. Last night's Fast Money commentary featured the remark that currency moves that used to take 6 months are now happening in just hours. This idea of a global jubilee (or Shemitah as was the subject of the 2012 best-seller The Harbinger) has been bandied about for many years now, and if it plays out per the timing of Sabbath 7 year cycling, it will involve a lot of market turbulence in September. So far, the 7 year cycling has been dead on. In September, 2001 we had 9/11 and for the first time in America's modern history, Wall Street was shut down for many days. Seven years later we had the crash of 2008. It is now 7 years after that and the jubilee may be at hand. There are a lot of critics of Jonathan Cahn's book, but what are the odds of the 7 year timing we've had thus far being just pure coincidence?

As for gold, a subject of my 2013 article, The twin parabola fractal may still play out, because the divider downtrend may end up being about four years, which would put the second parabola starting about now. If gold is to follow money printing exactly, the separator would be a little over three years according to the chart I showed for the eight central bank balance sheets as a percent of global market cap. If gold were to take off now into the second parabola here in late 2015, four years after its late 2011 peak of the first parabola, it would be following pretty closely this money printing formation allowing perhaps for the manipulation blitz.

The manipulation of gold may come to an end if a jubilee debt reset takes place and the financial world is reorganized. So what role gold would play or at what price is really unpredictable. The most likely direction would be up you would think, but who knows. I don't think gold would have the safety factor traditionally given to it in such a scenario.

Whether the current market turbulence is a beginning of such a development is far from certain. If money printing can continue with some stability, we still have a slow, stable recovery proceeding, and we will have very low interest rates for some time, and we still have US retailing wanting to lead the markets higher as is evident from a glance at the RLX. But the current situation certainly calls for a boatload of caution.

Sunday, August 2, 2015

For Those Of Us Who Missed Puma

Puma Biotechnology (PBYI) was one of those legendary rocket rides in this thrill park of biotech that you want to buy in clear 20/20 hindsight. It is a development stage company working mainly on neratinib, a drug for breast cancer among other things, and its prospects moved the stock out of its slumber for its first couple months as a public company in 2012, into a wild ride up from around 20 to 260 in about two years. "Where was my buy order in 2012?" you have to ask yourself.

Well maybe the market is giving us a redo on that. There is another small, little known biotech working on the same thing and, if it makes you feel any better, Puma's neratinib has fallen on hard times as reported in the 2015 ASCO Conference. The drug is now showing some 2.3% more effectiveness than placebo with the added benefit of severe diarrhea. This news has crushed PBYI from 260 back to around 85: (click on image to enlarge)

Neratinib is not the only iron in the fire for Puma, but as this chart clearly shows, the market places a very high value on what happens to their breast cancer efforts. The incredible climb in the stock is now very broken.

Enter Oncothyreon (ONTY) and their similar effort against breast and other cancers. Their story is just the inverse of Puma with the stock sliding since 2012, but with a stunning reversal after some very promising data released just before ASCO this year:

The two are so similar that the developments of this year are creating some internet buzz about PBYI and ONTY being a pair trade, shorting PBYI and long ONTY, with talk of ONTY being the new Puma. I like ONTY technically and the insiders at the company have started liking the stock also lately with several million dollars worth being bought up over the last year or two by a variety of people. The "IH" (insider held) number is still a little too low for my taste (only around 8%) but this tiny company could possibly start attracting some more serious insider buys. The quiet consolidation it has been in the last two months showed virtually no response to the market correction - nice strong handed behavior that typically precedes nice climbs, if the other technicals are good.

So if you missed Puma and are willing to deal with the risk, you might want to look at ONTY as a redo.

Saturday, June 6, 2015

A Drug Stock To Watch

If you're looking for a big biotech that is "not keeping up at all" with the hot sector, as a recent 24/7 Wall St piece on five laggards detailed, then check out Idera Pharmaceuticals (IDRA) for a possible catch up move. Actually Idera isn't all that big with less than a half billion dollar market cap, and it is just a $3 stock right now. But don't you wish you had bought all those $100 plus biotechs when they were just $3 ?

I won't even go into the fundamentals because there aren't any. Idera has no current revenue, but what's even worse is that they had some tiny revenue back in 2010 and then lost that. However, the new medicine developers don't trade on current numbers, and if you're going to profit from them, you have to turn a blind eye to the usual stuff.

If you need a brief primer on the new medicine, I refer you to my recent article at Seeking Alpha "Insider Wisdom And The New Medicine". Here I want to look at a part of the new medicine called "gene silencing". Since the completion of the 13 year Human Genome Project and the platforms that, since around 2006, have made a complete map of anyone's gene operations routine and cheap, they have been fooling around with our genes' programming and are on the verge of learning a few tricks to changing the channel on errant genes and the associated diseases.

DNA makes a material from which our proteins are made called RNA. Proteins facilitate everything including disease. Gene silencing was first conceptualized in 1998 when researchers at the University of Massachusetts found that certain types of RNA can turn off the programming of certain genes. And if you interfered the right way, you could turn off the production of any protein you wanted including those errantly causing a disorder. It was important and new because some 85% of our proteins can't be targeted with traditional medicine. This earned the Nobel Prize in Medicine in 2006 and began the wing of genetic medicine known today as RNAi (the "i" is for interference) and prompted the founding of Alnylan Pharmaceuticals (ALNY) in Cambridge.

Since then it's been a roller coaster ride for RNAi fans as recounted by a recent MIT Technology Review article "Gene-Silencing Drugs Finally Show Promise".

All told, there are about 15 RNAi-based drugs in clinical trials from several research groups and companies. “The world went from believing RNAi would change everything to thinking it wouldn’t work, to now thinking it will,” says Robert Langer, a professor at MIT, and one of Alnylam’s advisors.

But I don't want to look at ALNY in this post, but another of those companies working on RNAi, Idera Pharmaceuticals, also of Cambridge. It was founded in 1989, long before gene silencing came along, but now it is the major focus of the company. They have nothing in Phase III and are one of those speculations with all the associated risk, but I would like to point out a recent development that probably tilts the gambler's odds a good bit in your favor.

To appreciate that development, you should probably read the Seeking Alpha article mentioned above and also the Genomic Health article here on my blog. There are certain key insiders to pay attention to in biotech therapy development and Julian Baker is one of these. On February 13 this year, he stepped in with a near $20 million insider buy (he is a director) and this, along with the stock's fractal condition (my analysis method) makes this stock worth watching: (click on image to enlarge)

Idera came down from around $15 pre- '08 into a protracted base from which it began to emerge in 2013. The Bakers had it in their funds back then and sold some just before the market got really bad. As the graphs on the Bakers show in my articles, when they buy over about $20 million worth in any one year, big rises typically begin in a year or two. That just happened with Idera. It is in a 1 1/2 year base (black lines) and is not a buy until it is clear of it. But if and when such a break occurs, the climb could be pretty good.

Saturday, March 28, 2015

A Couple of Short Squeezes in Drugs ?

I don't know how fond you are of profiteering off the misfortune and agony of other investors (as in being long short squeezes) but I've run across two that look interesting and may tweak your interest if you're the sadistic, opportunist type. Drug development by the small companies is a dangerous playground where short sellers like to play. Generally I venture there only when the technicals are very good and the insiders, who hopefully know as much or more than the shorts, show a lot of confidence. I don't go looking for a short squeeze.

But I'm long two names that also are becoming a worry for a very large shorted float - Newlink Genetics (NLNK) and Intercept Pharmaceuticals (ICPT).  Intercept has some Phase II and III drugs for liver and related illness with proprietary bile acid compounds. Newlink has a line of cancer drugs, but of particular interest lately is their ebola vaccine, which is being fast tracked into use. It is the new synthetic approach where the vaccine is 'built' not grown with live virus and is much safer and can be made in large quantities needed by such things as an ebola outbreak.

I won't bore you with more medical knowledge than that, mainly because that's about all I know anyway. Both stocks carry a huge shorted float of around 28% with days to cover 11 for NLNK and 4.5 for ICPT, creating a tight squeeze for shorts to get out if the stocks keep climbing, especially for the smaller Newlink. The NLNK shorts are in retreat having backed down from a 32% level just two months ago. Both stocks have extremely high insider ownership at 29% for NLNK and 41% for ICPT, making the insider army even greater than the short army. Both of these groups of people are very smart and well informed, and when they rumble, the gains can be extreme.

Stocks tend to repeat chart patterns, and a striking resemblance caught my attention between Newlink's condition now and Intercept's condition about a year ago. Let me show you: click on image to enlarge

Both stocks have a ramp up in short interest over this time frame, although ICPT was only around 10% of the float. The treatment of the market (also a very smart group) in both cases is remarkably similar, in a similar business. There is growing accumulation in both, a similar burst of very high volume, sharp up moves about 6 months previous, then a similar settling into a quiet climb atop the 140/200 day moving average support, which is about the best divider I've found between intact climbs and those breaking up. The quiet climb amid accumulation is also a similar positive.

What happened to ICPT after this pattern about a year ago? In one of the most brutal annihilations of shorts ever, ICPT reported a good trial result on their main liver drug, the only treatment for a disorder that about 12% of US adults suffer from, and the stock vaulted some 580% over the next two days. Bits and pieces of shorts were laying everywhere.

Will the same thing happen to Newlink? Who knows. But there is an interesting similarity. Just sayin'.