Lessons from the Pros

On the other hand, the bond market might rally nicely on a 50-point hike – sure in its convictions that such a big hike will indeed drive a stake through the economy’s heart, quell inflation, and drive yields down as bond prices go up. How do you spell yield curve inversion?

So it will be if nothing else, a bit more of an interesting week than summer usually gives us. Bon chance!

This Week’s Market Movers – Fed Moves

Earnings season will continue apace and, together with speculation about the Fed, dominate the week’s action. On the economic report front, it will be useful to watch new home sales on Monday for any signs of a bursting bubble yet. Plus, we get a double dose of consumer news on Tuesday and Friday with Consumer Confidence and Consumer Sentiment. Last but not least, we’ll get our last revision of the 1st quarter GDP on Thursday, with little change expected.

Portfolio Picks and Pans: Epix and VIta

Both of my biotech holdings EPIX and VITA had a little air let out of their balloons last week after nice move’s up. I’m holding and using the downshift to scale up on Vita. Other than that, this is a good time to be in cash.

Vaino’s Biotech Corner: Oh Canada! Oh Cardiome!

July 1 is Canada Day, the national celebration of Canada’s birth as a nation in 1867. Aside from being, as many of my American friends like to point out, “America’s goody-two shoes little brother,” Canada is also America’s largest trading partner. Here’s a particular trade you might want to ponder:

Cardiome Pharma (CRME) is a Canadian biotech company focusing on heart disease. Cardiome’s lead clinical compound is the sexily named RSD 1235. It is used to treat atrial fibrillation (abnormal heart rhythm), and it has undergone two successful phase three clinical trials. Both studies were for administration via IV injection. The drug works by regulating the sodium and potassium channels that control contraction of the heart.

On news that the FDA rejected their filing (with partner Astella) of a New Drug Application (NDA) the stock dropped from over $11 the last week of May, and is now trading just above $8. The important aspect here is that the rejection of the application was not due to clinical issues, but rather with problems in the submission itself. That is, there were inconsistencies between patient records in different parts of the filing.

To be clear, this type of error is stupid carelessness that should never happen. It’s a shame that the efforts of, likely, hundreds of scientists were devalued by the inattention of the regulatory affairs department. Regardless, this type of mistake has happened before and will happen again. While this is a setback, it doesn’t negate the beneficial effect of the drug.

In data from the phase three study, IV formulation of RSD 1235 was found to return 52% of patients suffering atrial fibrillation to a normal heartbeat as compared to 4% of the placebo group. The drug works, but getting it to market is going to be slowed down. CRME also has an oral version of this drug in a phase two study.

The stock dropped because investors panicked at bad news. This is what most investors do. My take is this creates a buying opportunity. From a technical point of view the moving averages are (obviously) bearish, but MACD and stochastics are bullish. The drug will be approved and the stock will go back up, eh.

Matt Davio’s Hedging Your Bets: Mark Ups or Downs & More Fed Musings

As we come to the last week of June and the end of the 2nd quarter, the markets haven broken out of their 4-year volatility snooze. That is a good thing for traders. That is a bad thing for indexers and buy-and-holders.

The market finished flat again for the 2nd week in a row. Everyone seems to be waiting for the FOMC and their next steps. The market is clearly in tight control by the FOMC at this point. Will it be .25 or .50 next week? Depends on how hard a line the Fed wants to take. I would think .5 would achieve a hard lined attitude and allow them to wait and see for the remainder of the summer, but I don’t know if they have the guts to raise .5 and rock the boat. Everyone has the innate desire to be loved and Bernanke is no different. I think the market wants to rally and is greatly oversold on many technical levels at this point. The problem I struggle with is that everyone is a technician and sees all those same signs. So . . the conundrum continues for both the Fed and the Traders.

There are some good arguments from both a bullish and bearish perspective. The bulls can point to the nearly historic extremes of pessimism we saw a week ago and show all the stats about future equity returns we usually get from panics like that. The bears can point to our so-far limited ability to rally in the face of those readings, which is a hallmark sign of weak markets.

I think we continue to wait for the FOMC Thursday and the month/quarter end mark up or mark downs this week.