Don’t fight the fed, the fed, the fed…no, that fed…and that fed…

There was no doubt we were headed into a bear market as we had a classic topping pattern leading to the October plunge. This was no coincidence as the U.S. was winding down (for now) it’s printing of money. The last 2 times the U.S. stopped, markets dropped 17 and 20% respectively. It should be obvious, fedheads knew about this and were worried about it. They had something up their sleeve. Little did we know there was a coordinated effort on a global scale that increased this morning. First, it was our Fedheads trying to calm things down by saying we would have another QE program if need be. Then, the BOJ not only increases but increases markedly. Then you got Bernanke Jr in the ECB dude…and now surprise, surprise, surprise, China lowers rates leading to a stretched, extended, overbought and overly bullish sentiment reading market to gap up this morning. Wait a minute, did you say China? That can’t be. China is growing 8%/year. Why would they need to ease? Well according to the accounting firm Dewey, Cheatham and Howe…maybe, just maybe the numbers in China are not what they are cracked up to be. At least, China is worried.

I remember the charts from 1999 well. Stretched and extended became more stretched and extended which became more stretched and extended. This occurred because of easy monetary policy. Well…we now have the mother, father, sister, brother, aunt, uncle and long lost cousin of an easy monetary policy which makes Greenspan look like Volcker…and it is causing all this. The SEMIS are poised to break out of range. The BIG FINANCIALS may just do the same. We already know about the major indices notwithstanding the small caps.

Enjoy the day. Since we have been asked a few times already this morning…we do not predict reversals but we recognize when a market can be ripe for reversals off of news-driven gaps. Just realize the few men and women that run the trillions that have been printed and that will be printed in the future…remain in control as this massive coordinated effort grows larger and larger.

A word to the wise!

Firstly, the small caps are again underperforming with the Russell 2000 rolling over. As we have told you, market is waaaaay overdue after the easy money-induced move higher. The only sign we need to look for is the small caps as they have shown the way when the market is ready to correct. We think the overdue correction is at hand but have no clue yet as to size and duration. Just keep in mind, things that haven’t rallied with the market will roll over first.

Now…a word to the wise.

Neothetics priced its upsized 4.65 mln share IPO at $14, the mid-point of the $13-15 expected price range, raising total gross proceeds of $65.1 mln. Neothetics (NEOT) is a Phase 3 ready specialty pharmaceutical company that is developing therapeutics for the aesthetic market with a primary focus on localized fat reductions and body contouring. Their lead product candidate, LIPO-202, uses salmeterol xinafoate to reduce bulging in the abdomen due to subcutaneous fat through an injectable formulation. Salmeterol has been proven to reduce fat and shrink fat cells when injected. The company has completed six trials to date with over 800 patients to test the efficacy and safety profile of LIPO-202. In the Phase 2 trial already completed, their product demonstrated a statistically significant reduction in central abdominal bulging while being well tolerated and delivering a safety profile almost identical to that of a placebo injection.

As with most clinical-stage pharmaceutical companies, Neothetics has no meaningful source of revenues and is therefore strictly running at a consistent operating loss. For the nine months ended September 30, 2014, the company reported a net loss of $7.9 million, down from $12.2 million for the same period in 2013.

DO YOU SEE THE SECOND PARAGRAPH? “NO MEANINGFUL SOURCE OF REVENUES AND IS THEREFORE STRICTLY RUNNING AT A CONSISTENT OPERATING LOSS.

We mention this because in the past year, there have been dozens of Biotech ipos foisted upon an unwary public at valuations that are off the charts considering these dozens all had one thing in common…NO SALES! Yes…NO SALES. We did not say NO EARNINGS…we said NO SALES. Some of the companies have billion dollar market caps…some less. We bring this up because not only have these companies come public, but many have doubled in price because of the sector strength. Investment banks know how to read the public’s greed and appetite and do not care about the ultimate outcome. Here is what we think the outcome will be. From our studies of bear markets, companies that lose money will drop a ton…usually 50% or more. Companies with no sales will most often drop 75% or more with some going bye-bye because of their clear lack of sales and massive losses.

When we started in this business, we sold penny stock IPOs with more sales than these companies and came out with $3 million market caps at 5-10 cents/share. You get the hint. So maybe we will never have a bear market again. The Fed is doing their darndest to make sure one never occurs. But just in case, we have made a list of all these “no sales Biotech IPOs and will be watching closely. In bear markets, the carnage never fails as the curtains always come down on valuation when fear is back into the equation. Just a word to the wise.

No sellers!

Bottom line, there just continues to be very little in the way of selling leading to a grind higher. Markets remain stretched and extended to the upside off of the recent “v-shaped” move. Bullishness is back to being off the charts. But until price action changes, it is folly to think otherwise.

Recessionary news from Japan and some areas in Europe are a good thing as the money spigot opens wider.

What is not working!

Japan in deep recession…market has one down day after soaring…and right back up. Much of Europe is blah but markets rally up. You know the game by now. Markets drop…just announce more QE and do more QE…inflating things even more. Remember, all is well as long as markets continue to react well to the trillions that have been and will be printed by central banks around the globe. Leave no doubt that our slowing of QE was coordinated with others raising QE.

WHAT IS NOT WORKING!

Notwithstanding any short-term bounces:

We would continue to avoid GAMING…dead in the water right now.

We would continue to avoid most ENERGY/OIL & GAS. We do make note of good action in some pipeline stocks and recognize the buyout potential in the group..

We would continue to avoid GOLD/SILVER…though there is a counter-trend rally going on right now…and suspect there is some more to go.

We would continue to avoid countries like BRAZIL,RUSSIA and while European markets are rallying up here, they are still weaker than other areas.

We would start being careful about BIOTECH as a few names starting to act toppy with a couple of names having topped.

We would continue to underweight the small caps and to a lesser extent, the mid caps. This underperformance has been going on for almost a year and believe any time down, small caps will lead down. We are always looking for things to change but so far, nothing doing.

We would continue to avoid most COMMODITY areas though some are in bounce mode right now. Again, so far, it feels like nothing more than a counter-trend rally after an ugly drop.

Next report will be on WHAT IS WORKING!

About ready to correct?

After an outlier “V” shaped move up, we are starting to feel that signs of a pullback are close at hand. We are not suggesting anything disastrous but a few percent would go a long way in setting the charts up better. It would also give us a chance to decipher real strength.

A few things are occurring at the same time.

For starters, we are seeing some churning in here. This is an absense of progress as the markets trade.

Secondly, bullishness is now higher than it was before the recent topping process which may indicate everyone who wanted to buy have already bought.

Lastly, and this is just something we believe in…BIOTECHS look to have topped. Why does this worry us? BIOTECHS have been the leading “risk” group. When the market starts selling the leading risk group, it usually means it’s the start of a “risk off” period.

We will have our longer weekend report tomorrow night as we have been in travel mode this weekend.

My goodness…some decent insider buying!

We have told you for a very long time that insiders refuse to buy their own stock in the open market. This tells us that insiders do not feel there is much value at these levels. For one down and out area, that may be changing.

Southern Copper (SCCO) Chairman bought 500,000 shares at $28.90…$14.4 million.

Chesapeake Energy (CHK) Director bought 500,000 shares at $23.32…$11.7 million.

U.S. Steel (X) CEO and CFO bought 54,851 shares at $35.20-37.60…$2 million.

AK Steel (AKS) CEO,EVP and DIRECTOR bought 190,000 shares at $6.04-6.18…$1.2 million.

Just because insiders buy does not mean the stocks will go up. We just find it interesting that these down and out commodity-type areas are now getting decent buying after recent drops…and it is notable that two Steel companies are seeing buying at the same time. We will be looking out to see if more show up…and of course, we will be watching to see if accumulation shows up.

 

Gary K – Financial Fest 2014 Featured Speaker

Gary K
Financial Fest 2014
Featured Speaker

Saturday November 15, 2014
11:00 am
Scottsdale, AZ
Westin Kirkland Resort

No changes!

Wish we had something new to say but Wednesday’s action simply more of the same. A good down open did not last…and the NASDAQ leads while commodities stink.

We are in hopes we get some pulling back because it is only in the sell downs can we decipher where the real strength is. This second, the market has no interest in that accommodation. We are back to DEFICITS DO NOT MATTER…DEBT DOES NOT MATTER…RECESSIONS DO NOT MATTER. It is all about the QE and with Japan QEing to the tune equivalent to $3 trillion here and with the ECB boarding that train in a big way and with the direct correlation between up markets and QE,..need we say more.

Continue to underweight commodities. Continue to underweight small caps versus large…though small caps are coming on a bit here. We just believe if things do turn down, it will be the small caps that lead down again.