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Sunday, March 27, 2011

Cash Call Redux, Hot Biotechs -- Week Ending April 1 2011

Navarro’s Always a Winner Strategies

(Week Ending April 1      Volume 19, No. 2)

In the last newsletter, I urged a move to cash.  At that point, the Standard & Poor's 500 index as measured by the exchange traded fund SPY was at $132. Since that time, SPY has dropped as low as $126 and closed on Friday at $131. In other words, the market has done a whole lot of nothing since that cash call – and a few days after my cash call, Investors Business Daily changed its bullish call to "market in correction."

These are the times that it is really anybody's guess as to whether the bullish upward trend will reassert itself. On the bullish side, a number of indicators continue to point to a moderate investment led recovery. On the other hand, a variety of factors suggest trouble with all three of the other elements of the GDP equation – consumption, government spending, and net exports.

Consumers are plagued by continued high unemployment, weak home sales, and ongoing foreclosure problems. On top of this, their budgets are being squeezed by higher gas, broader energy, and food prices. While our Marie Antoinette Federal Reserve does not recognize food and energy inflation as real inflation – apparently wanting us to eat cake as our bread and gas prices go up – such non-core inflation is likely to have an impact on consumers moving forward.

On the government spending front, the big news here besides the winding down of at least some of the federal stimulus is a coming contraction in state spending at some of the hardest hit states like Illinois and California. Reduced government spending – whether it is at the government or state level – is contractionary from a macro perspective so we must anticipate this.

Finally, on the net export front, Ben Bernanke's doing his best to trash the dollar and provide United States with a competitive beggar thy neighbor edge abroad. However, China is doing an even better beggar thy neighbor job with it's protectionist and mercantilist policies; because the yuan is pegged to the dollar, no matter how low the dollar goes, our trade deficit with China merely increases. Meanwhile, a weak Europe is unlikely to buy a lot of American exports.

On top of all this, there are geopolitical uncertainties. Will the Jasmine Revolution spread to more oil-producing pro-American countries like Saudi Arabia? Will the Japanese nuclear disaster cripple the global supply chain or, worse, morph into a holocaust meltdown? And with nuclear power likely to share a smaller slice of the electricity generation pie worldwide, will higher electricity prices act as a contractionary force on the world economy?

All these factors are being sorted out by a market now which is showing surprising strength in the face of high economic uncertainty and geopolitical turbulence. This is not a market I yet want to play from a trend following perspective and therefore will continue to stay in cash till the bullish trend firmly reasserts itself. On this note, look for a solid breakout above the $136 mark for SP Y to confirm a bullish uptrend and stay tuned to this newsletter.

In the meantime, I will continue to do what I always do which is to keep a significant fraction of my portfolio in noncyclical biotech stocks. Here's a list of some of my holdings.

The newest member of my biotech portfolio is CYTK, Cytokinetics.  This is the latest new listing from Andrew Vaino at Roth Capital, Wall Street's best biotech analyst. CYTK develops small molecules to improve muscle function for the purpose of treating heart failure and Lou Gehrig's disease. Its clinical data looks promising, it has a good chance of achieving "orphan drug" status which helps with regulatory and clinical barriers, Amgen is subsidizing the development costs so it has a great partner, and the shares appear significantly undervalued. I'm loading up.

I have been doing some short-term trading around Neoprobe (NEOP) with the goal of building a large position in this stock. I sold off most of my position when made my cash call back in February around four dollars and started rebuilding as a stock fell down towards three dollars. I like this one for longer-term.

My longest term position is in LPTN, Lpath.  This is a low volume stock with pretty big price swings but I'm just going to hold my position and wait and see how the clinical trials pan out.

My one "Roulette" biotech is the penny play Advaxis (ADXS.PK), a pink sheet stock recommended by one of my readers. At $.11 a share, it's got little downside risk; and it's the kind of stock that if you get in early and it starts to move, it’s kind of like trading an option with a big payoff.

Last take: I continue to do some short-term trading in TBT, which shorts the long bond. My intention is to build a large position in TBT, but events like Portugal debt crisis in the Japanese earthquake can cause TBT to fall so you have to be careful trading this instrument. Over the long-term, however, I think it will be a home run.

On the book front, my new book (with Greg Autry) entitled Death by China is now available for presale at Amazon.com and will debut around June 1.  Get your order in early please!

12:02 pm edt 

12:01 pm edt 

Market Pulse: Cash Call, Cash Cow In the last newsletter, I urged a move to cash.  At that point, the Standard & Poor's 500 index as measured by the exchange traded fund SPY was at $132. Since that time, SPY has dropped as low as $126 and closed on Friday at $131. In other words, the market has done a whole lot of nothing since that cash call – and a few days after my cash call, Investors Business Daily changed its bullish call to "market in correction." These are the times that it is really anybody's guess as to whether the bullish upward trend will reassert itself. On the bullish side, a number of indicators continue to point to a moderate investment led recovery. On the other hand, a variety of factors suggest trouble with all three of the other elements of the GDP equation – consumption, government spending, and net exports. 
12:00 pm edt 


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DISCLAIMER: This newsletter is written for educational purposes only.  By no means do any of its contents recommend, advocate or urge the buying, selling, or holding of any financial instrument whatsoever.  Trading and investing involves high levels of risk.  The authors express personal opinions and will not assume any responsibility whatsoever for the actions of the reader.  The authors may or may not have positions in the financial instruments discussed in this newsletter.  Future results can be dramatically different from the opinions expressed herein.  Past performance does not guarantee future performance.

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DISCLAIMER: The newsletters and blogging on this page are written for educational purposes only.  By no means do any of its contents recommend, advocate or urge the buying, selling, or holding of any financial instrument whatsoever.  Trading and investing involves high levels of risk.  The authors express personal opinions and will not assume any responsibility whatsoever for the actions of the reader.  The authors may or may not have positions in the financial instruments discussed in this newsletter.  Future results can be dramatically different from the opinions expressed herein.  Past performance does not guarantee future performance.

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