Lessons from the Pros

Still, if you are a shorter term trader, you don’t want to be on the long end of the market as trends around the world markets seem to be either breaking to the downside or already broken.

This Week’s Big Market Movers

It’s a big week for data with the service ISM on Monday, productivity and factory orders on Tuesday, the Fed’s Beige Book and Consumer Credit on Wednesday, and BOTH the jobs report and the trade report on Friday. My guess is that action will be a bit tamer in the early part of the week in anticipation of the Friday dynamic duo. I don’t see either Friday report as offering any blockbuster news .

I think, then, the jitters about the market alone will be enough to ramp up a bit of volatility and the slew of reports will play second fiddle to fear replacing greed in the current market equation.

Vaino’s Biotech Corner: Biotech As A “Safe” Sector

Biotech is supposed to be insulated from the business cycle as a whole. Theoretically, biotech stock prices ought to reflex clinical successes and failures, rather than trends in future economic expansion.

Looking at the Markets this week, both the AMEX biotech index (^BTK) and biotech ETF IBB (more diversified than BBH) plunged in lockstep with the broader markets, even falling a bit extra. In the long run, stocks of biotech companies with good pipelines are insulated from movements in the Market as a whole. So, when a big decline in biotech stocks occurs for reasons beyond science it can be a good time to buy.

As “mere anarchy was loosed on the world” this week I was watching for good biotech stocks to fall. Cardiome (CRME) a Canadian biotech I like, and wrote about last Canada Day, has taken an 11% dive since Tuesday (as of close Thursday: I will be traveling on Friday and unable to check prices). I don’t believe this is warranted.

I wrote in July that Cardiome had fallen due to the FDA rejecting their NDA filing for an IV form of their drug RSD1235, which treats atrial fibrillation. A paper in 2004 published in the Journal of the American College of Cardiology on a Phase 2 study of this drug was very encouraging. The rejection had nothing to do with the science but merely with careless paperwork. As well, they announced good clinical results for an oral formulation of this same drug in September. The stock had a good run after I mentioned it, going from $8 to $14 and is now below $11.

Cardiome announced two weeks ago that the problems with the NDA filing above have been resolved, and the FDA has accepted their application. Please note, this does not mean the drug has been approved, only that the application has been accepted. I think this stock fell too far for reasons having nothing to do with science, and that the stock is now undervalued.

To be clear, the so-called “fear index” (VIX) remains (as of close March 1) almost 50% higher than it was on Monday, and more trouble could be on the way. Once the dust settles I think CRME will be a good stock to buy.

I also like Amylin (AMLN) at theses prices, especially on news last week that the FDA will require further testing on Novartis’ (NVS) diabetes drug Januvia. Hopefully things will not fall apart, and the center will hold.

The Never Ending Story: Hollis Eden

This coming week promises to see some fun volatility as Hollis Eden’s (HEPH) “tentative date” for an award under Project Bioshield on March 7th approaches. As I’ve mentioned, I think this company has a weak pipeline (loads of preclinical studies, but, according to the FDA [clinicaltrials.gov], nothing currently in Phase 2) and sinks or swims based on this award.

Now, this stock didn’t move as I though it would after announcing the January 31 “tentative contract” award date had been pushed back to March 7. I wrote in the Newsletter the week before January 31, that open interest on February options was very low, while open interest on March options was decent. Open interest on March options remains acceptable (not high, it’s a nano cap stock after all), and open interest on April options is negligible. I think this portends a strong move one way or the other.

As I mentioned last month, my bet is on no contract and I bought March 7.5 puts (QGQ OU). For low price volatile shorts I think the safety of options, as opposed to outright shorting, is worth the premium. To be clear, this is highly speculative. We’ll see if I’m right next week. In any case, as with past “tentative award” dates last January, November, and September, there will be some fun volatility for day traders.

The International Scene – Technical Take

In a sharp reversal, some longs went to avoid. They include SPY, IEV, EEM, and FXI. Longs that deteriorated include EZU, EWG, ADRA, EWY while ILF and EWW went from Long to Neutral. Australia stood alone as a clear long.

The planet shuddered last week. It remains to be seen whether this was a technical event or a signal of weaker global economic growth to come. Stay tuned.

*Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Jordan, Korea, Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey.