Neurochem (NRMX)

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David Miller

Keep an eye out on Neurochem (NRMX) today. The option prices have been very high on this one because it has become yet another battleground stock in the biotech sector. The company’s Alzheimer drug, Alzhemed, has been derided and praised on Wall Street, and the biotech bulls and bears have been shooting the heck out of one another for months in the name.

This morning the company announced, in quite an impressive press release, that their primary analysis of the trial had failed. They blame imbalances between the treatment arms for confounding the results. They are going to an alternate analysis, which we presume is a Cox regression analysis, that has the ability to account for and correct those imbalances.

The problem is that when a primary analysis fails, the FDA can choose to ignore any subsequent analyses. The company is careful to say in their press release that the Cox analysis was prespecified, but there can be a great deal of variation in what “prespecified” means in terms of what the FDA might accept.

Bottom line is the trial failed at the first look and it will take several weeks to get it straightened out.

Look for options players to start rolling their May positions out a strike or two and for the action in the stock to be wild. Is this the next Dendreon (DNDN)? I doubt it but we have to wait and see what the data are and hope we can get a straight story from management on exactly how “prespecified” this Cox analysis was.

Equity Index Update

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Brad Sullivan

And the Midcap 400 shall lead them. Was it not just 6 weeks ago that the market suffered from an intense bout of “forced” liquidation? Now, here we are looking at new all-time closing highs in the Midcap 400 Cash index and watching the remainder of the indices get within shouting distance of their 2007 highs. The NDX was helped by comments from the CFO of CSCO when he stated that earnings would be towards the high end of estimates during Friday afternoon. The stock immediately shot from 26 to 27 and provided the lift needed to boost the index market on a quiet Friday afternoon.

This morning the indices are called higher based on several factors. First we had strong rallies in the Asian markets and that has carried into European trading. In addition, Sallie Mae agreed to a private buyout that put a nearly 50% premium on the stock. Finally, earnings from two key banks C and WB were much better than anticipated.

Of course, we cannot forget our old friend the currency market which was given the all clear signal from the G7 over the weekend to continue the “carry” trade with abandon. Indeed, overnight the Euro/Yen continued through its respective all time high and the USD/Yen appears not too far behind. This liquidity driven currency trade has produced one of the key elements for tracing index moves both domestically and abroad. Simply put, comments out of the G7 meeting show just how sensitive the central banks of each nation are when it comes to the carry trade. Given the tremendous growth of funds using this trade over the past several years, it is easy to imagine how ugly a liquidation of this trade would end up being for the global markets. Indeed all one has to do is look at charts from last spring and a few weeks ago when hedgies were forced to liquidate positioning under “margin call, gentlemen” types of situations. Nobody wants that again, and the banks appear both coordinated and committed to ensure that the “carry” will not end the game.

This morning there is a potential early setup on the buy side. Even with are sharply higher open, players have been getting used to selling the open and getting long somewhere in the first hour for a walk the line rally. If players get caught trying this and the dealers come in on the buy side, look for significantly higher pricing in the first hour.

Finally, the final 2 hours of Friday’s session produced a significant volume increase in the SPminis and ER2 contract, when compared to their respective YTD and 5 day averages. Considering we settled on the highs of the session, this week looks potentially quite bullish.

Outlook for the US Dollar

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Sally Limantour

The dollar was at this level back in the 1978.. We have tested this area a number of times and there are two predominant perceptions right now.

The dollar will be supported down here. Going back to charts in the 1970’s there have been 4 times we have tested this level and bounced – 1978, 88, 92 and 05.

Here is the logic:

Foreigners currently own roughly half of our Treasuries and securities and are Buying over a trillion dollars worth every year. It is in their best interest to not let the dollar fall much further.

The other idea is that many other countries have interest rates that are higher than the US and their currencies are more attractive.. Britain, Germany, Australia and others are all higher and their ministers of finance are talking more about concerns over inflation and raising rates to control it. The US, however is still hinting at lowering rates in the future to offset a weak housing market.

So this is the dilemma and we have to watch this closely as it will have repercussions for many markets.

While I hold CD’s denominated in different currencies ( as a way to be short the dollar), I am eyeing a potential short term trade of going long the dollar. On Friday morning, looking at the Market Profile chart we had a high level of trade occur at 81850 and I went long. It took off and I aggressively moved my stop up and captured a good part of the move and am now flat.
(see Market Profile chart – look at 4/13 and see where the horizontal line is longest at 81850. It then gapped up and traded crazy before settling at 81950.) This technical set up together with the chatter getting loud on dollar bashing while talking up the Euro (German exporters calling for 1.4000 in the euro) made me get a bit contrary in the morning).

Options may be the way to play this as a way to get long with a good risk/reward strategy. I am still bearish the dollar in the big picture, but it may be overdone and the first perception mentioned may move the market higher.

The following charts are:


1. Long term chart of US Dollar

2. 30 minute chart of US Dollar

3. Market Profile of US Dollar

Timer Digest Change of Market Bias: Going Neutral Tonight

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Fari Hamzei

About 6pm PDT today, I informed Jim Schmidt of Timer Digest, by email, that I have elected to change my market timing bias from LONG to NEUTRAL.

We have prepared a video to explain the reasons behind this change. Due to size limitations imposed by our video distributor, Revver.com, it is in eight parts.

Video Part 1


Video Part 2


Video Part 3


Video Part 4


Video Part 5


Video Part 6


Video Part 7


Video Part 8

NYSE and NASDAQ Markets

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Tim Ord

The NYSE Market:
Below is the NYSE McClellan Summation index and the McClellan Oscillator dating back for three years. The NYSE market becomes overbought when the Summation index reaches above +3500. The Summation index has been in the +3500 range since last October which implies the NYSE has been overbought since last October. Tops form on the NYSE when the NYSE makes higher highs and the Summation index makes lower highs. Recently the NYSE just tested its previous high of late February and the McClellan Summation index is making a lower high for the third time. The next time the NYSE Summation index turns down it will mark the top in the NYSE.





The NASDAQ-100 market:
A similar bearish setup occurred for the NDX. However, we believe a top is in for this index. There is a gap on the NDX near the 1808 level and that level is being tested on much lighter volume and triggering a bearish signal. Therefore is unlikely NDX will rally through the gap level which implies the February high will be the top. The same bearish scenario is present with the NDX McClellan Summation index as with the NYSE McClellan Summation index. The NDX made higher highs as the Summation index made lower highs. After the second lower high turned down on Summation index as the NDX made higher highs produced the sell signal. This sell signal was triggered near the February high. Strongest part of the decline may come when the Summation index turns down the next time.

Timer Digest Commentary -- My 2 Cents

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Fari Hamzei

A very wise woman once told us at a Southern California Technical Analysis meeting: "Trust Your Indicators" (keep that in mind as you read further here).

Well -- Tax Selling started early this week with the FED minutes showing the concerns for future core inflation is on the minds of Board of Gov. of FRB.

I would add this, if the rally we have witnessed from Mid-March was based on a FED rate cut assumption, then with today's release of FED Minutes, further wash out is a given.

Brace yourself and get rid of your least desirable stocks. Keep in mind, the daily and weekly trends are still up.


Editors' Note: This was filed with Timer Digest on April 11th, half an hour before the cash market closed.

Equity Index Update

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Brad Sullivan

The index markets continued to trade in a narrow range with a sustaining bid underneath the current pricing zones. Activity was light as volume flows are running at a -30% clip in some of the indices versus their respective YTD averages. This afternoon will bring the release of the Minutes from the last FOMC meeting and should spark some bit of trading activity. In addition Dr. Bernanke will speak in Washington and Richmond Fed President Lacker will speak on the economy in Charlotte. Given the lack of movement, I have included 5 charts today, 4 of which are focused on the MA % differentials since the start of 2007. The other chart continues to show the strong correlation between the YEN and SP.

Bond Market

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Sally Limantour

Friday’s non farm payrolls number was a bit of a shock and has dashed any hopes of a rate cut in the near future. Revisions of the past two months were strong and the unemployment rate fell to 4.4% matching a low back in May 2001. Interesting too was the strong leap in construction employment in an industry that has negative headlines on a daily basis. Remember that February’s number was quite negative and the 56,000 new jobs created in March construction is most likely an adjustment. The important thing is the trend and the direction for the past three months in construction employment is still down.

As of April 3rd the COT report showed the spec and fund combined net short position of
126,351 bond contracts. We have to assume this position is larger as the market is a full point lower now and it will be important to see the COT report this Tuesday. The 109 level I have been looking for in the Treasury bond futures (USM7) is close at hand and although the COT reflects a large short position amongst the spec community, bond prices can still go lower before a good bounce. In fact, many times I have seen bond prices move an additional 3-4 points even with an extreme COT position.

Talk of interest rate cuts will now be on the back burner as the Fed will remain on hold. Inflation is ticking up and having just returned from the Bahamas where I attended the Natural Resource Summit of the Americas, I am still convinced we are in a major bull market in commodities and this sector will outperform. It is both a supply and demand issue in many of the raw materials and we should see opportunities ahead in the base metals, precious metals, molybdenum (try saying that word three times fast) uranium, energy, alternative energy, water supplies and food. This is a theme I will continue to cover and focus on both in futures and the natural resource stocks.

Looking ahead in bond land this is a slow data driven week with the biggest news coming on Wednesday as the FOMC releases the minutes from March 21. Following this we have Chicago Fed Moskow speak about the US economy, then Thursday’s chain store sales and Friday’s report of the PPI, the Uni. of Michigan Consumer Sentiment and the international trade numbers for February. It is not inconceivable for the 30 year Treasury bonds to trade back to long term support at 108.00.

Equity Index Update

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Brad Sullivan

The index markets rallied off the surprisingly strong Non-Farm Payrolls data released on Friday morning. The SPM7 contract settled the trade at 1458, up over 5pts on the session. This morning our domestic market will be open, however, the DAX, FTSE and CAC are all closed and volume flows should be dramatically reduced.

As for the employment report, the headline reading was +180k versus expectations around -30% lower. In addition, the rate of unemployment dropped to 4.4% and revisions for the last two reports were sharply higher than anticipated. The true damage done was in the short end of the yield curve, where Eurodollars were hammered lower by -10 to -16 basis points in their shortened trade. The long end held up marginally better, but still finished with significant losses on the session. The dollar was able to rally against nearly all the major currencies.

The question on the board now becomes this…if the index rally from our recent lows has been predicated (at least partly) on lower rates, what happens now that the cut appears off the table in the short run? My suspicion is nothing that would take us lower. I think the marketplace was much more concerned with any Sub-Prime leftover worries a couple of weeks ago during Fed speak. When those fears were not shared with the FED, the indices took off to the upside. I would argue that most of the longs have been building positions based on the continued global economic expansion (Copper anyone?). However, there are two potentially damaging issues that the indices must overcome to gain any territory from the current pricing.

The first issue is the breaking of the staircase rally since the July ’06 retest of the 1225 level in SPX. The violence of that break in February remains and it materially changed the steady low volatility environment players had grown accustomed with trading. If this move is nothing more than a retest, late April and early May could prove to be a velocity driven trade on the downside in equities.

The second issue facing the marketplace is the erosion in the Money Center Banks and Broker/Dealers. These issues have been “liquidity” leaders for the current bull move and right now they are flashing caution in the near term.

Finally, with Europe on holiday today, trading should be thin and quiet. I would anticipate at least one attempt for the SPM7 to trade towards the 1453 zone, which is where the index was moments before the employment release. 1454.50 to 1457.50 should provide a choppy “no fly zone” throughout the rest of the session.

Timer Digest Commentary

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Fari Hamzei

Yesterday we saw U.S. stocks close sharply higher as a drop in oil prices calmed worries about inflation and news of an unexpected rise in home sales raised hopes that the housing market is stabilizing. Unquestionably, the rumors of the impending freedom for British Royal Marines held captive in Iran since March 23rd, fueled the strong bid across BigCaps, TechLand and Small Caps. And as George W spoke in the Rose Garden, bashing the Dems, our favorite Defense stocks BA, NOC and RTN, provided us an early warning of the explosive move.

Good Friday has historically provided an up bias for the market; however next week, we expect some selling as we all need to meet our obligations to Uncle Sam by April 15th.