DummySpots.com

I discussed pretty extensively in a post last November the fact that I expected to see sales of Genentech’s (ticker: DNA) Avastin explode in light of the fact that it had been approved for NSCLC at a dose of 15 mg/kg, three times the previously-approved dose of 5 mg/kg for colorectal cancer.

In the meantime, I’ve been seeing some limited usage of Avastin for yet another huge market, and the one which gets a disproportionate amount of publicity- breast cancer. In some studies, high-dose Avastin (15 mg/kg and even higher) has sometimes appeared to improve outcomes in some cases.

But the usage of high-dose Avastin does not seem to be taking off, even with FDA approval, and the matter deserves a little deeper investigation.

At first blush, the high-dose approval would appear to be screaming-good news for Genentech. However (and this is a BIG however), what’s not being publicized quite so well is that, possibly because of Avastin’s anti-angiogenesis mechanism of action, the high doses seem to have a noticeable incidence of very serious GI side effects, particularly ulcers and perforations, sometimes life-threatening.

Anti-angiogenesis is great when it comes to attacking tumors. Prevent the formation of new blood vessels, choke off their blood supply, they die. Wonderful. And it “doesn’t attack healthy cells the way ‘traditional’ chemo does”, an implication that this is some kind of magic bullet.

It’s not. To say “it doesn’t attack healthy cells the way traditional chemo does” is a qualified statement, but the marketing people won’t mind at all (wink) if you and maybe a few hundred thousand healthcare professionals (wink) misinterpret that as “it doesn’t attack healthy cells.”

A Little Drug-Marketing Background from an Insider

This type of thing is not unique. It’s not even uncommon. It’s one of the most effective marketing techniques drug companies use, and they use it extensively. Aventis developed the market for one of the most successful drugs in history, Lovenox, by emphasizing the tagline that it “didn’t need to be monitored like regular Heparin.” [a clearer statment would have been “the very possible risk of bleeding complications with Lovenox cannot be reliably predicted with the clotting tests performed on unfractionated heparin”- I think you can see the difference in connotation by the wording they used] Healthcare in general dropped the last three words from Aventis’ tagline (like anyone, we simplify and remember the short version), misinterpreted it in exactly the way they were supposed to, and to this day we have many, many (many) physicians who mis-dose Lovenox, particularly in patients with renal dysfunction, because they think “Lovenox is safe,” and “Lovenox doesn’t have to be monitored,” and (contrary to Aventis’ official recommendation), “Lovenox doses don’t have to be adjusted.” The campaign to educate them otherwise has been amazingly weak and ineffective (wink).

A much more recent and public example has been the marginally-effective HPV vaccine developed by Merck, which whenever discussed in public was discussed with the misnomer “Cancer Vaccine,” not by accident, and the media did the rest. Well, the media and some good Friends of Merck who happen to hold high political positions and command a lot of attention. As a healthcare professional, this angered me, but I’ve seen it before. As a father of three daughters, it outrages me to this day, which is why I haven’t discussed it much publicly. I might lose my temper. This is NOT a miracle drug and this will NOT eradicate cervical cancer, and the science says as much, but it’s not science that gets the headlines- it’s the marketing jargon.

And Amgen’s drug Vectibix, which the “anal-ists” were proclaiming to be the next blockbuster? It has a documented incidence of potentially-severe side effects of… and this is not a misprint… approximately 90 percent. Not 0.9%, not even 9% (which would be very notable). If you bet your life savings on Amgen, do it because of their marketing prowess and political power, not because of this drug.

What Does This Say About Avastin?

Back to Avastin. I would also point out that anti-angiogenesis is not synonymous with “good” in most realms other than tumor destruction. In fact, various drugs and viral vectors (yes, volunteers being infected with a strain of Herpes on purpose) have been studied for many years now in an attempt to promote angiogenesis in heart patients, which might lengthen their survival, improve their life, etc by providing increased blood flow to the heart via newly-grown coronary blood vessels.

This gets to the overall point that drug companies universally do not publicize: a drug’s beneficial effect is because of how it works, and very often a drug’s detrimental side effects are, guess what, because of how it works. COX-2 inhibitors (the entire “Vioxx” class) are great for arthritis pain, because they inhibit COX-2. They aren’t so great for the heart, because they inhibit COX-2!

Avastin at very high doses seems to be doing “something” which leads to an increased incidence of GI tissue necrosis, damage and perforation. GI tissue is highly-vascularized, which means it’s continually growing millions of new blood vessels to support the tissue turnover and proliferation. In other words, GI tissue is big on angiogenesis. I haven’t seen any published studies which definitively show why Avastin has the detrimental effects it does (such studies are -wink- very difficult to find funding for), but there appears to be a potential connection here, IMHO.

The upshot? Avastin’s high-dose use in NSCLC isn’t rocketing skyward as was expected, and the potential new use in breast cancer may be questionable.

That’s my version of fudamental analysis. You… (hey, are you still listening?)… you keep an eye on that darned chart and watch those stops!

This morning I overheard Erin on CNBC speaking to Art Cashin who, along with Rick Santelli and Bill Seidman, make up the bulk of CNBC’s real wisdom all rolled into their few minutes per week of exposure.

Erin: So word has it that private investment is buying much of the subprime mortgage paper at pennies on the dollar. Is that evidence that the problem is correcting itself?

Art: Well, Erin, vultures are needed in any ecosystem…

StrategyDesk Formula-Writing Tip of the Day:

Be aware of the difference between the high of the last 30 minutes and the high of the last 30-minute bar.

StrategyDesk’s Bars are clock-dependent (for lack of a better term). Its 30-minute bars go from 0900-0930, 0930-1000, etc. If you use the Bar[High,30,1] formula at 0945, you’ll get the high for the 0900-0930 period, no matter what happened from 0930-0945.

If you want the true “high for the past 30 minutes” at any point in the day, say from 0915-0945, use the PriceRangeChannels function instead, as in PriceRangeChannels[Upper,30,0,1].

And remember the infuriating formula in the so-called Syntax Guide that goes like this

StrategyDesk’s 90-minute bars appear to go as follows:

• Bar 1: 0930-1059 EST

• Bar 2: 1100-1229 EST

• Bar 3: 1230-1359 EST

• Bar 4: 1400-1529 EST

• Bar 5: 1530-1600 EST

That’s right- the last “90-minute bar” is only 31 minutes long.

Anyway, from that little bit of detective work I’ve decided one error in the above formula is that the “12″ in Bar[Hour,90] = 12 should actually be a “13″. I’m pretty sure there’s a problem with the “15″ statement as well, but I’m too tired tonight to think any farther into it… more work to do here.

Update: Upon further review (and after a few hours’ sleep), the formula stands as written by AMTD. They right, me wrong. What I failed to observe last night was that the Hour part of the formula stands for the hour in which the current bar begins, and since the 90-minute bars (by my own description above) begin at 0930, 1100, 1230, 1400 and 1530, we do indeed only need statements for the hours of 9, 11, 12, 14 and 15. Dang. Happily, this realization cleared the cobwebs up enough that I can now construct various time of day formulas. Check my Formula Reference Page for updates.

No need. In fact, this is finally one of those times when we could do this “in our sleep.” One of the most common questions I’ve heard in the last week is, “Do you think the correction is over yet?” Exsqueeze me? A baking powder?

Let’s back up, take a breath (no, really, take a long, deep, cleansing breath), and look at what we’ve got. Not what “they say” on CNBC. “They” have a vested interest in keeping our stomachs knotted up. Here’s what we’ve really got:

Pretend for a minute that you’re looking at a chart from 1992. Detach from the anxiety of the present moment and the emotional attachment to the balance of your 401(k). This chart is as clear a trend break on super-high volume as you’re ever likely to see. If we were looking at a chart from 1992, it would take about half a second to read it.

If those guys in 1992 were trading on any timeframe longer than a couple of weeks and shorter than a few years, they should have been in cash for a week now, waiting for the chart to signal a new entry. Anticipating a short on the resumption of the down thrust. If it goes up, look to re-enter long once an uptrend has clearly been re-established (weeks, maybe months). Otherwise, wait for the signal.

This is a swing trader’s playground. Short for a few days, long on the reaction, short on the reaction to the reaction, etc. When people get scared, they start to act purely out of emotion, and when people act out of emotion, the charts clear up considerably, like a fuzzy picture coming into focus. People become more predictable. Like if you walk into the middle of a herd of Angus cattle and scream. You don’t know their individual personalities, or what they think about their future, but when they panic, they all react predictably. (Well, except for that stupid one over in the corner of the pasture, chewing on his cud and uploading pictures of naked heifers to the internet.)

That’s what charts are, after all. Snapshots of people’s current emotional state with regards to a stock or the market. Not the result of cold, rational decisions as we’d like to believe. It’s why stocks trade at multiples, and not at book value. Opinion, charged by emotion. Doubt whether we primarily operate from emotion? Just observe today how many cold, deliberate, rational people you see. And observe how many times you hear the phrases “Do you think” and “I think” followed by an emotionally-charged statement.

Unfortunately, it’s our emotional state that is behind many poor decisions, in life and in trading. The whole point of technical analysis, paper trading, chart reading, even so-called “fundamental analysis”, is to develop the skill to make prudent decisions in spite of our emotions.

So, in answer to the Big Question, I don’t know. I never do. I just try to trade the charts like a complete moron (if you don’t follow Dave, this is a compliment to him- it’s how he refers to himself). Right now I see a lot of sweet shorts setting up. If they rise a bit more, they’ll become a lot of sweet longs setting up. That’s it.

None of this really applies to daytrading, of course. With daytrades, we can go long or short at any time on any day. That’s what we love about it, and the recent volatility and “people acting like cattle” just makes it that much more lucrative.

I’m off to the dentist. Writing with a toothache sucks.

Have a look at the SPYders:

It’s a pullback after a down thrust. Yet everybody’s running around like chickens with their heads cut off. Really. I’ve seen ‘em.

My response? What, are you playing this thing blindly? Where are your rules?

You trade with trend lines? The trend broke. You’re in cash, waiting for a higher high to cancel the breakdown, or more likely, a setup to get short. Not “should I jump in here” or “I think it’s headed up, I’m afraid I’ll miss the ‘buying opportunity’, what do you think” or “woulda, coulda, shoulda”.

You trade off moving averages? You’re either out (50ma), waiting for a break (200ma), waiting for a crossover (50/200, you must be crazy), or whatever. The bottom line is, you’re not wringing your hands. The stop is in place. Have another drink.

You daytrade? You’re on your knees about now thanking God for sending you some volatility after all these years. Finally, some action!

What I’m hearing are the histrionics of the Water Cooler gang. Armchair traders who like to talk trading, who take credit for their 401(k) balance rising in much the same way they talk about “building” their house when they’ve never driven a nail. Laying claim to someone else’s skill, in other words. There’s an Ayn Rand lesson here somewhere.

The real traders are calm, even smiling now. Like a good blues player hearing someone taking off on Sweet Home Chicago. Been here, done this. You just lead off with a few bars, Mr. Market, and we’ll be right with you before the chorus.

If you are playing this thing blindly, devise yourself a game plan, and quickly. Don’t jump in or out because you think it is going to do anything. Decide 1) where you’ll sell and why, 2) where you’ll buy and why (and where the stop will be when you do), and 3) where you’ll sell short and why (and where the stop will be). Write those numbers down. Pay no attention to CNBC, the chartman, Cramer, the guy at the bus stop, and especially the folks at the water cooler. Devise your own rules. Follow your own rules. You’ll be glad you did.

[From 2/27/07]

Got a few things to talk about today. First, the morning action and how easy it is sometimes for good traders to get whipsawed out before a big move… and how we must Endeavor to Persevere, keep our chin up, and follow our plan.

(Or not- sometimes it is best to know when to say when, as I think W.C. Fields said– “If you fail, try again. Then quit- no use being a damned fool about it.”)

My first position this morning was long the Qs. That’s right, LONG.

My StrategyDesk screener was sitting there with Dell at the top of my “prospects” list early-on (after about 0945, the list had anywhere from 5 to about 20 stocks setting up at any one moment; I order the list by volume when it gets long, and work on the ones at the top). Dell was set up, but just wouldn’t break to the downside.

I generally keep a chart of the Qs open for reference, and noticed that as Dell was failing to break to the downside, the Qs had actually set up and broke out– for a long entry! My old friend the OGRe (Opening Gap Reversal):

At this point, I was comfortable that the Qs were heading to close the gap, and I might as well change my scanners over to start watching for other long setups. However, I got straightened out pretty quickly as things rolled over and headed south violently on the 1055 EST bar:

Typically, after gearing up for shorts, then going long on a reversal, when that long is then stopped out, it’s easy to say “Forget It!” out of frustration. However, it’s often on that stop of an entry taken on a reversal that the big moves take place with very few people on board, most on the sidelines from having been stopped out. And as we know, the market loves to make its big moves with as few people on board as possible.

I was stopped out of my long, and once again went back to watching for shorts, especially given the suddenness of the move at 1055. It was at this point that Dell broke short as well:

I did manage to get short here. I know there were many stocks which made bigger moves, and I did cover too soon (trailing stop too tight and thinking “it’s almost out of steam”… old and still-too-frequent errors). However, I read the play correctly, I positioned correctly, and I caught a chunk of the Big Move. No regrets.

On the 200-point gap- I’m still waiting to hear an even close- to- reasonable explanation from the talking heads. After all the bragging by the exchanges after the turn of the century how they had massively upgraded their systems and no volume known to man could bog them down… “the computer that calculates the average got logjammed” … um, nope, not buyin’ it. I’d find it much more believable to read that the multi- hundred- billion- dollar hedge funds (that cross most of the market’s volume via super-fast, super-powerful computer-generated trades) had unleashed a massive “sell program” which, in a matter of seconds, completely constipated the exchange. Supposedly no one can “lean on the market” with quite the weight of a Jesse Livermore in his day, but these guys can certainly walk bids and asks around a “bit”. Not manipulating, mind you. That would be wrong. Just the, ahem, unintended effects of lots of big trades.

And then there’s the arbitrage question: if the stocks which constitute the Dow were falling, and the “computer that calculates the average was logjammed” and got behind, how many billions of dollars were made in a matter of five minutes by computer programs buying those 30 stocks and simultaneously shorting the Diamonds or the Dow Futures as the spread between the combo of those 30 stocks and the index which is supposed to represent that combo got farther and farther apart, only to snap back together in one near-instantaneous 200-point leap?

On the latest CNBC “competition”- what do you do when you’ve got everything to gain and nothing to lose? You go for broke, of course. That’s why these marketing shams never reveal anything about actual trading.

How to win something like this? It’s not SKILL! Get a bunch of people together. Get a list of very volatile, low-priced stocks. Have each person pile his or her entire “fake money” stash into one or two of those stocks. Chances are very good that someone will “make” a boatload, and hey, there’s no downside. This is putting Fooled By Randomness to work. You could even agree that if someone out of the group wins, you all go on a cruise or something. I’m sure that’s how many, many people are “playing” this thing. It’s just a game, after all. They would never do that crap with REAL money.

This is also why contests like this end up crowning some clown as a “brilliant investor,” when all they’re actually doing is crowning the one who got lucky. In life, sometimes it’s hard to tell the difference. Many of our major institutions are run by lucky idiots. Fooled By Randomness, again. Read it.

Favorite Talking Head Quote of the Day- some “expert” was being asked what he thought about the prospects for China as an overseas investment, what with the falling of their stock market and all.

His response? “Stock prices falling is just an equity market phenomenon. We believe China’s economy will continue to be strong and therefore China itself will continue to be a good place to invest even if their stock market falls.” Or something to that effect. My only thought was, “And how, Mr. Fancy Pants, do you propose that people invest in China, if not via their equity market??”

That’s “all I got” for the moment. I had a long day at work, and I’m hurting, exhausted, and a little hung over from the moving adventure last night.

Cheers, ya’ll.

• Supper Tonight: Wendy's Single Combo plus a Frosty for dessert. Tonight, I deserve it.

First, a quick look at The Market Today. As you know, the Dow and S&P remain firmly in their uptrends, and both set new highs again today (for the Dow it was another all-time high). I don’t think that’s news to anyone. What may have fallen by the wayside is the fact that the Dow Transports also hit another intraday and closing high today:

That’s what the Dow Theorists would call a bit of confirmation (the stock market version, not the Catholic one). Very rosy news (couldn’t help the pun, with Valentine’s and all), but there’s one more bit of confirmation that would make the picture complete:

Yep, the Nasdaq 100 is still going solidly Sideways, in a formation which, over the last 3 months, looks a bit like a Head and Shoulders (and yes, I’m a bit delirious tonight and started to link to this).

However, we’re also less than one good solid “up” day from breaking out to a new high, so the next few trading sessions will be veddy interrresting. We’re near the top of what would be the right shoulder if it fails from here without breaking the former high of 45.40.

Was lucky enough to work late today, so had an hour or so after the market opened to doodle around with Ameritrade StrategyDesk a bit during market hours (so far I’ve been using it for End-of-Day backtesting). I must say I was certainly still frustrated with the clunky interface, but again pleased with the program’s potential. I set up a test alert screen to kick out stocks which had gapped up, were in the top half of the day’s trading range, and were within “x” cents of the last “y” minutes’ high (I varied this one, for instance, within 10 cents of the last 15 minutes’ high).

StrategyDesk’s charts are simply a pain in the butt, so I just used it for the screener. I had it on my left monitor, Quotetracker (main window) on my middle monitor, Firefox with 3-4 tabbed sites (Yahoo, Prophet.net, Order entry) on the right monitor, and various QuoteTracker charts scattered across all three monitors.

When I cross-referenced the stocks the StrategyDesk screen burped out with my usual Prophet.net screen, I got some very promising results. For instance, early-on the combo was sitting on CIEN and AMAT like Dickey Betts sitting on that last riff in Ramblin’ Man.

After firmly establishing the major tonality with a singing bend of the 9th or 2nd (A) from the Aeolian mode to the major 3rd (B), he basically treats measures 1–6 (I and IV) as a G tonality and emphasizes the root (G), 3rd (B), and 5th (D) notes from the G major triad. Measures 11 (vi) and 15 (I) are the only time that Betts uses the b6th (C) from the Aeolian mode as a quick pull-off to the B (major 7th of C and 3rd of G) for melodic variety. (from the “Fender Players’ Club”)

Yeah… whatever. But AMAT was a good early-day play, and CIEN just ran and ran thru midday, so I’ll be doing more research in this general direction.

A couple days back an astute regular commenter pointed out the huge down day on Mastercard (MA). I had mentioned that we might get a setup out of it. Well, Fan, here’s our pullback:

The pullback broke through the 61.8% Fibonacci level, but that’s not a deal-breaker, just something of note which takes the probability of our setup down a few percent.

The volume has been diminishing beautifully on the pullback. Classic.

What do we do? I’ll be looking to enter short on a resumption of the downtrend tomorrow, if it happens. A continuation of this “up” thrust much past the 50% point (108 and change), and we’ll go into wait-and-see mode, as there may be too much buying interest to go short. If I do Get Shorty, I’ll set a tight stop just above the pullback high, calculate the difference between that and my entry point (tah-dah! “R“), and size my position accordingly.

Cheers… let’s watch…

• Supper Tonight: The fabulous chicken and egg (how synergistic) sandwich with caffeine-free Sam's Choice diet cola. Yum.
• Watching: "The Departed" if I can stay awake

First, let’s take a quick look at the Qs overlaid with one of the best indicators on earth- Dave Landry’s Big Blue Arrows (and if you want to laugh your butt off, here’s Dave and his Blue Arrows featuring his Top Analyst):

There’s no long-term trade here without a break out of this range, say above 45 or below 43, plus or minus.

Now let’s look at a couple of our most favoritest regular visitors, Boss Google and Boss Cisco. They’re important not only as potential trades, but also because of the effect they have on the NDX and consequently the overall market. They’re both at very crucial points where they need to get off their bee-hinds and show us some strength, or throw in the towel and slide on down the slippery slope. First, GOOG:

Nice, precise “to the penny” double-top action there. We failed out of that second top on big volume, and now the volume’s tapered off. Here’s a closer zoom:

A resumption of the downtrend tomorrow would be a perfect opportunity to move our stops down to today’s high 474.35, (since today’s high will then qualify as a minor pullback top). For someone not short, a resumption would be an opportunity to enter, set a nice tight stop, and join the rest of us shorties.

Google also has the option of breaking out to the upside, which will see many a pretty little 3-day swinger stopped out.

And Cisco. Oh, Cisco. How about that good news?

Stocks inched higher Wednesday after Wall Street welcomed a robust sales forecast from Cisco Systems Inc. and a stronger-than-expected productivity reading.

***

In corporate news, Cisco rose $1.07, or 3.9 percent, to $28.35 after the networking equipment maker predicted its third-quarter revenue would rise 19 to 20 percent.

from an AP article entitled Stocks Rise on Cisco, Productivity News and reprinted by virtually every news organization

So, Cisco rose 3.9 percent, eh? Close- to- close, yeah. But what does the chart say?

It opened way up, then pulled an OGRe (Opening Gap Reversal) and went down, down, down all day. The OGRe would have been a perfect point to get short (anytime a stock gaps way up and pulls an OGRe on you, it’s begging to be shorted). However, I must note that the failure of the OGRe happened at about 0934 at approx. 28.60, and most of us mere mortals like to let things shake out for 30 minutes or more, so it wasn’t that much of an opportunity.

Today could be the failed second top to that 1/11 “highest high.” Since we have a gap below it and it was such a high-volume bar, it’s a pretty straightforward trade: short a break of today’s low with a stop just above the big resistance at 29.00. We either make money or lose a buck. If we lose a buck, that means it’s broken to a new high, and that’s an opportunity to look for trades in the other direction. Sweet.

• Accomplished Today: Worked at the Cancer Center; tore up my in-dash CD changer; pulled the battery on my VFR800, it's old and drained and I plan to go through 2 sets of tires this year

Why they won’t raise: Are you kidding? With the economy tripping and stumbling along, especially considering that interest rates are still exceptionally low, anything further “letting off the gas” (the brakes haven’t been touched in many years) may cause it to go into a tailspin.

Why they won’t lower: The recent weakly-positive reports show the economy still tripping and stumbling along, so there’s not enough weakness to “react to” with a cut, thank goodness. And they certainly shouldn’t lower in reaction to the tanking housing market, any more than they raised in reaction to the overheating housing market in the past. The best thing we can do for the housing market (or the overall market) is to let it work itself out. We had our 10%+ yearly gains, now it’s time for the other side of the coin. Remember “reversion to the mean”?

A change in the Fed Funds Rate in either direction would be bad for the stock market, on the one hand because, well, rates would be going up. On the other because if they lower we’ll hear “The Fed is showing us that they think the economy is too weak, which will be bad for corporate profits, etc, etc.”

And of course, don’t forget the ever-present dollar. The Fed Governors, despite what they say for the sound bites, are wary about weakening it any more through their actions. Their best hope, their only hope at this point, is for some magical fire to light under our economic growth so they can “come to the rescue” and start raising to try to contain that growth. Mmm, good for dollar.

And they can hope for spending restraint. Or for pigs to fly. Let’s see, we have the tax- and- spend democrats… and now the neo-Republicans with their cut- taxes- and- spend- even- more gluttony. No spending limits in sight. So, we’re left with hoping for decent economic growth.

Here’s to hoping. Cheers.

• Supper Tonight: Seafood, wine and more wine courtesy of major drug company who makes most of their money from Medicare who gets their money from your taxes. Thanks, it was good!