(EPIX) 4.28 : Predix Pharmaceuticals, which recently announced a definitive agreement to merge with EPIX, announces that it has entered into an exclusive collaboration and licensing agreement with Amgen (AMGN) for the development of novel, orally available S1P1 modulators for the treatment of multiple autoimmune diseases. Under the terms of the agreement, Predix and AMGN will collaborate on the development of existing Predix preclinical compounds and new S1P1 modulators. AMGN will be responsible for clinical development and commercialization of the product candidate. Predix will receive an upfront payment of $20 mln. Additionally, if certain clinical, regulatory and sales milestones are achieved, Predix can earn up to an additional $287.5 mln in milestone payments.

 

--PN

FFIV's low volume rally back to resistance foreshadows further weakness.

 

If AAPL as it approaches 65 and the longer term downtrend can close above, I would be a buyer for a upwards test towards 75-80, but if it can't convincingly close over 65, this could be it for Mr. Jobs again for sometime after this 23% bounce off the recent bottom.  We shall see . .

This one is a leading edge site on real estate futures. And this is no small city, the capital of California. What say you?

 

Tells it all, inflation is everpresent. When will Ben accept and take interest rates higher?

 

If GM was your guess, then you should have bought the stock at the end of 2005. As usual  the Dogs of the Dow are the top performers the following year . .

 

Heading out for family trip. A much needed trip away from screens and blips will suit us fine as we head into the vacuum period of this end of summer. Earnings are nearly over, and I sure have seen big woosh downs on "good" earnings. Remember, its now how they act into earnings, its how they act after them.  I am starting to see very clear signs of weakness in Retail (cake,bby, rrgb, bwld, pnra, wfmi, ntri) and housing.  I am also seeing oil taking it to the TRAN index as we are now down 13% from the highs there with misses by UPS and the rails missing wildly. I would say that energy can't be passed onto the consumer and that is the reason for the big misses there. Wages are falling and the dollar is somewhat stablizing. Let them take the vacuum period and rail the stocks into month end and thru august as the news vacuum will be in full effect. Get back to business in the fall when volatility will remain high and the next earnings period is upon us in October. We also have another Fed meeting in early August, so we will have to "wait" for that big news. My bet another .25 raise and probably stop for now.  Until then, take a look at one more retail chart that is setting up nicely for a good beating with the premise that the consumer is tiring without their MEW (mortgage equity withdrawls).  HDI has rallied nicely right to resistance under 56 bucks. Sell it up  to that point, then you can add up thru 60 if it breaks that resistance. 

 

Cardiome (CRME) had a pretty good start to the week, jumping by over a third Monday on positive news from a Phase 2 clinical trial of their orally active drug to treat abnormal heart rhythm.  As I mentioned in my column a few weeks ago, I think once the "clerical errors" in the filing of the NDA for the IV formulation of the same drug are resolved, easily by the end of the year, the stock will climb even higher.  That being said, with this week's spike it might be a good time to take some profits.

 

I've written in the past about Elan (ELN).  This stock has been on a very profitable rollercoaster these past few years.  The stock has been taking a beating over the past few weeks, though it's showing signs of life today.  Elan, along with partner Biogen Idec (BIIB) announced Monday that Tysabri, their drug to treat multiple sclerosis (MS) that was pulled from the market in February 2005, is once again avaliable in the US.  MS is a cruel disease and treatment options are very limited.  Tysabri is, to date, the best treatment for the disease:  it also looks like a promising treatment for Crohn's disease.  Strong sales in Q3 and Q4 will push ELN up even higher by the end of the year.  For me, I'm liking the Jan 07 12.5 calls.

Check out the large cap to small cap ratio chart. I have discussed the fact that we think the small cap hey days are now over and the large cap companies with the deep pockets will do better in the future higher interest rate enviornment coming at us.  Remember PE ratios also take into account the E. What I mean by this is the Earnings in our work have had a nice 4 year run and seem to us to be peaking, which means PE's are still historically high vs past years.  Just as PE's overshot in the late 90's they will undershoot before the real bull comes back after this correction cycle which is now 6 years deep.

So we finished the week, weak, following ANOTHER helicopter Benny rally. I wonder when this market will stop hinging on the fed. I am frankly tired of the blabber as I think most market participants are. The bottom line is the market will do what it does ultimately with or without the Fed. I say cash out Ben and his cronies and let a true free market ring out the fat as always, but then the gig would be up and natural, healthy, cycles would come back to this country. Anyone remember the last deep recession? I would put the number close to 2 decades at this point, late 80's was a tad deeper than the early 90's type.  The Fed has truly had a ring on events. I was looking at some dates today of interest.

The week W took office the Dow was in the 10682 area vs. today's closing prices of 10868. That is the largest industrial 30 names in the US markets. Not very impressive if you ask me.  That's pushing 6 years of work for the administration. In that same time, the US Dollar has gone from 115.79 to todays closing price of 86.17. So let's see the dollar is nearly 25% less in its spending power as it was in November of 2000. So in real dollars your esteemed market is actually down about 22%. The deficit is completely out of control, wars are raging world wide that we can't win nor afford and yet the easy money policies have convinced some that they are wealthier than ever. I think the writing is starting to fade from its invisible to clear as day on the wall, and the consumer is completely spent out not pent up.  Cycles should happen and are weeding out process of true cyclical healthy economies.  I would be most impressed if the "fed" allowed the natural cycles to occur, but the opinion on the hill is our people of this nation can't take deflation. I beg to differ, the USA has the strongest most ingenious people and do our best works when our backs are against the wall. Let the cycles play out naturally, because if you don't the cuts will be far deeper than anyone can even imagine.  The housing bubble is so popped, yet the lagging effects are just beginning to be felt. The ATM policy the fed created over the past 4 years is far worse than any Fed head will ever speak until it is too late. I have no doubts that prices will fall in the housing markets. None whatsoever. Wages are flat to falling nationally and globalization will catch this country flat footed if the cycles are prevented from coming sooner than later. 

I've always liked the "Smart Money" stock screens that appear in The Wall Street Journal, so I thought I would give it a try.  With the Market heading south I thought it might be interesting to look for biotech stocks that would make promising short candidates.

 

I screened all biotech stocks using the following parameters:  trading above $10 and within 50% of their 52-week high, current assets < $150M, average (3 month) volume >150K, net income << 0.  In addition to these financial indicators I then selected on the basis of the stock's technical attributes.  I then evaluated a "clinical index" in which I assigned a score of 1 for each Phase 2 clinical trial and 4 for each Phase 3 study (on average ~1 in 4 phase two studies proceeds to phase 3).  Note, I deliberately ignored Phase 1 studies.  As a final selector I looked at management and only selected companies that had more than 1 in 8 employees as executives.

 

I came up with three companies:

 

Ticker         Technicals        "Clinical Index"    % Executives       

ALNY           Weak                       0                       12

BCRX          Weakish                   4                       20

NRPH          Weak                       4                       13

 

My bet is these stocks will decline at a greater rate than the rest of the Market over the next 1-2 months.

 

AV

I am kind of a music junky when my market mistress doesn't have me by the tail.  Here is a great mix by Mark Vidler at Go Home productions. Great summer mash.

 

Even the high end retail names are starting to show a serious chink in the longer term charts. No suprises, even the belts will be tightened by the deep pocketed ones as we go forward. I still think, we may be oversold and testing the June bottoms, but ultimately I can see the dow down to the 9800 area and SP down to 1165-80 before a real test of the bottom occurs.  Let's look at a couple charts that scream to me, sell all rallies.

My friend  and squash playing partner Bill Valentine a money manager here in Central Oregon has a nice concise piece on what he thinks are the steps that could occur in housing. I think it is very clear already the steps, but I l liked his thought process here and thought I would relist it for him (www.livetherichlife.com).

 

"HOW THE BUBBLE COULD PLAY ITSELF OUT"

1)  Speculation in residential real estate, empty homes put up for rent, pick up in For Sale By Owner

(ALREADY HAPPENED).

 

2)  ---- MARKET PEAKS ----

 

3)  Home builders see big year-over-year declines in orders (ALREADY HAPPENING).

 

4)  Inventories of unsold homes build up relative to home sales, the For Sale By Owners start seeking commissioned help (ALREADY HAPPENING).

 

5) Interest rates rise, the fixed portion of Adjustable mortgages end, foreclosures pick up (JUST BEGINNING TO HAPPEN)

 

6)  The leading markets show price declines (JUST BEGINNING TO HAPPEN)--San Diego

 

7)  Home-equity driven consumption all but dries up (NOT YET).

 

8)  Broader price declines his average markets, hottest markets go down more--including those dependent on buyers coming in from hot, out of state markets. (NOT YET).

 

9)  Pick up in foreclosures, market switches from Buyer's to Seller's, speculators sell at a loss, or commit themselves to staying in for the long haul (NOT YET).

 

10)  Significant damage done to consumer confidence, Housing-and-Consumption driven Recession ensues, Fed eases monetary conditions (NOT YET).

I think the charts of the two leading "stuff" stores, CC and BBY are starting to show that the consumer is tapped out.  These  names have had a big run due to the ATM's that housing became and big plasma screen tvs, xboxes, dvd's, computers, and all electronic gear have all benefited from the low interest environment over the past 5 years. The gig appears to me to be up.  I think the initial break on the weekly chart means that you can now safely sell rallies in the big box electronics retailers. Tougher times will be ahead for both manufacturers of goods and the retailers of the fancy toys.

 

Here's a perfect example of what a buy program can do to a dull summer market with new news of substance. The Mombai bombing couldn't really do  much for US equities but a mild mannered garden variety sell off today, but let's look at three intraday charts of what a classic summer buy program looks like. Today was nothing more than peas being pushed around the plate by algorythyms.

 

I have been gone for past week or so, playing my invitational golf tourney, which my partner and I ended up winning and topping the field of 60 two man teams. A real hoot and some good golf and friends were made.  Tourney golf is really a grind, much like trading. My wife always asks why I play games that demand as much effort as my work life. I guess its a lifestyle choice, but I love the game along with many other mentally/physically demanding games. Its a rush to grind it out hole over hole for 72 holes!! Anyways, I realize some of the charts we have used in the past are large and we are working on some alternatives that will hopefully show smaller sizes. With that being said let's try out a chart of STJ. I really like this company along with the medical device companies like MDT and BSX. I think once the new medicare reimbursements come out in August these stocks will have seen their bottoms for some time and I like to own some in the money calls in these names out for the next 6 months to 12 months.  Take a peak at STJ. It really appears a bottom may be in the cards soon. Don't forget in this environment, cash is definitely an investment.

 

Anyone who's taken a marketing class in the past few years has likely read a case-study about a company called Biopure (BPUR).  Biopure makes a blood substitute called Hemopure, a polymer of hemoglobin (an iron-based compound that transports blood).

 

Last Thursday The Wall Street Journal ran a story that the Navy has asked the FDA to allow a clinical trial of Hemopure in civilian trauma patients.  Today (July 11) Biopure announced they are seeking approval for Hemopure in the UK to treat anemia in adult orthopedic surgery patients (South Africa approved Hemopure for human use in 2001).  As well, the stock is showing strong technical signs.

 

Now, Biopure has had troubles in the past trying to get this product approved.  Oxyglobin, their similar product for veterinary use, is approved in the US.  Results of a clinical study, published in 2002 in The Journal of Thoracic and Cardiovascular Surgery, are encouraging but not overwhelming.  However, in cases were blood isn't readily available I think this could be a valuable product. 

 

Blood has to be refrigerated and is only good for 6 weeks.  Hemopure can be stored at room temperature and is good for 3 years.  There's also no need for blood typing.

 

Biopure's been around awhile and their balance sheet is more anemic than the patients they treat.  The stock is trading near $1.30.  These two applications are pretty much their last chance.  That is, if they miss on both they're out.  Of course, if they hit on one, the stock will leap.

 

My take is that this is a very risky stock, but one I just can't resist.

 

Andrew Vaino 

The Bush Administration is touting the fall in the projected budget deficit as evidence of the wisdom of their fiscal policy.  It's a clever argument but wrong.

 

The double dose of fiscal and monetary stimulus have indeed goosed the economy and that boosts tax revenues.  But like a meth high, it is an unsustainable boost.  Next year (after the election) as the economy has downshifted to well below its potential output, tax revenues will once again fall and we will be left with a structural budget deficit due to fiscal imbalance and a cyclical deficit due to soft growth.

 

The markets will not like any of this.

 

PN 

This week's newsletter is up and running.  We will be off for the remainder of July for the newsletter but the Daily Blog will be active.

No bullish forecast is safe in the face of renewed oil price pressures.  Add to that some corporate profit warnings which INEVITABLY must come with a slowing economy and the market becomes unhappy.  What's curious here is that the jobs report was pretty Goldilocks -- not so hot as to signal inflation but not so cool as to signal recession.  Still, the markets aren't liking all of this.

Nothing like a few missiles from a madman to turn a bullish trend into a bear.   Let's see how the markets digest this. 

Longs

The Weekly Newsletter Will go on hiatus for three weeks in July