After I sent the Flash Alert on Tuesday morning telling you to sell the S&P puts right away, the market used 1440 as a slingshot level to head back up to the top of the current range at 1490. While many market commentators called that a remarkable turnaround and hoped it marked the beginning of the next leg up, I saw it as simply a quick consolidation of the prior down move. And I think yesterday and today’s action confirms that view. Until the S&P 500 decisively breaks over 1490 or breaks under 1440, we simply don’t know which way the next four months are going to go. I still think that the situation will resolve to the upside, with a strong run up through the end of the year and probably into March 2008, but the market doesn’t care what I think.

In fact, I am more cautious than I was before this break, and the current situation has raised my stock market threat level to orange. That’s because the last slingshot up from 1440 starting on September 10 got all the way to the record intraday high at 1576. When the test back down from that high couldn’t hold at various important levels like 1532, 1520, 1507 and, finally, 1490, investors showed less willingness to step in and buy stocks than I expected. That’s not the type of action I like to see in a bull market, and definitely is cause for concern. I prefer to see markets consolidate by moving sideways and finding support, rather than going back down to previously important levels and then not finding support until even lower levels. Because that shows less real buying power ready to come in to support prices.

So right now we don’t know if Tuesday’s sharp jump means that the uptrend is back in control, or if it was just a test up to the 1490 breakdown level. Ideally, the S&P will drift around under 1490 — which is now a sell signal on the weekly chart — gathering strength, and setting up to break out. The second best scenario would be having the market fail to get through 1490 and then fall back to 1460. Then if a slingshot develops off 1460 that breaks out and closes over 1490, it could be a whopper, booking 200 to 300 S&P points in a matter of weeks. But we broke below 1460 today, and if this level is not regained immediately — as in tomorrow — it becomes potential bad news. Staying below 1460 would mean 1440 has to hold, or we will be looking at a move down to 1326 over the next several weeks (instead of over a few days in the Crash scenario that I was worried about last week). We should find out in the next few days whether the next four months are going to be a rip-roaring ride to new highs over 1600, or a grinding sideways-to-down environment to 1326.

In either environment, our MegaShift stocks are doing pretty well, with even some of the problem children like UTStarcom (UTSI) and Telkonet (TKO) posting good news recently. So this week, I’ll continue to review September-quarter reports and conference calls, and address some of your recent questions. We’ll wrap this up next Tuesday, when your weekly Radar Report will come out early due to the Thanksgiving holiday.

Avian Flu MegaShift

Crucell (CRXL) reported Tuesday before the opening, with revenues up 115% from last year to $91.6 million. Vaccine sales were strong and the new 5-in-1 Quinvaxem children’s vaccine drove the quarter and should strengthen further in the December period. The gross profit margin almost doubled to 35.9%, and the loss for the quarter fell to 10 cents a share from 53 cents last year. I was expecting closer to $115 million and breakeven, but the lone Street analyst was not too disappointed as he was looking for a 10-cent-per-share loss on $109.4 million in sales. The company is more profitable than either of us thought, but the revenues were still a little disappointing. The company repeated full-year guidance for $322 million to $329 million in revenues, and cash flow at breakeven.

Crucell also revealed good Phase I results for their rabies monoclonal antibody cocktail, and said that the FDA has granted fast track designation for this program. So, overall, it was a solid quarter, and the stock held up nicely until today, when it dropped $1.37 for no reason that I could find. Crucell is continuing to do well and their partners’ programs are advancing on a broad front. CRXL can be bought up to $28 for my $50 target.

Biotech MegaShift

Amgen (AMGN) moved up today after the company filed some new transfusion data with a formal request to the Center for Medicare and Medicaid Reimbursement to reconsider the national coverage determination for Aranesp and Epogen to treat anemia in cancer patients. The data suggest that since the Medicare decision to cap treatment at 10 milligrams of hemoglobin, transfusions are being used more frequently in mildly anemic patients that could have been treated with Aranesp or Epogen. Everybody who has looked at this data, including professional societies, European regulators and even FDA regulators, have concluded that their guidance should be for discretion by physicians between 10 and 12 milligrams of hemoglobin. Medicare is the only place that stops at 10 milligrams. Amgen is positioning this as giving physicians discretion to practice medicine, but I don’t think it will work. However, it does appear that very few non-Medicare payers will adopt the 10-milligram standard.

Based on this filing, Lehman Brothers upgraded AMGN this morning from equal weight to overweight and increased its target price to $72. I still think the stock is headed for $95, so you can buy the Amgen January 2009 $70 LEAP call (VAMAN) all the way up to $12.50, for a $25 target price when AMGN stock hits $95, on or before the LEAPs expire.

Dendreon (DNDN) reported results after the close today, and I am about to get on the conference call. Revenues and earnings don’t matter, but for the record, they were $112,000 million and a loss of 23 cents per share. The company burned $19.7 million in cash in the quarter and had $138 million left on September 30. There was no word on the European marketing partner — I didn’t expect any — but they may discuss some of the new programs that will follow Provenge for prostate cancer. With the pivotal trial of Provenge now completely enrolled, they should know exactly when the follow-up period will end for the 400 patients that will be in the “peek” at the data next year, so we may get a tighter estimate of when they’ll announce those results. DNDN remains a buy while it is under $8 for my $40 target after Provenge is approved.

Rochester Medical (ROCM) also reported earnings after the close. They did $8.4 million in sales and 10 cents a share pro forma, above the one published analyst’s expectations for $8.4 million in sales and seven cents. That brought them in at $32.6 million and 40 cents pro forma for the September 2007 fiscal year, and the lone analyst is looking for only $38.9 million and 34 cents for fiscal 2008. I think that they can beat $40 million and do 40 cents. I’ll be on the conference call shortly, and if anything dramatic happens I’ll send you a Flash Alert. ROCM is a Top Buy up to $23 for my $40 target.

China MegaShift

China’s trade surplus jumped to a new, all-time, monthly high in October at $27 billion, up 13.6% from last year. The trade surplus with the U.S. rose 12% to $15.7 billion. For the first 10 months, the surplus is up 59% from 2006 to $212.4 billion. That’s already well above the full-year record of $177.5 billion set in 2006. Last year’s trade deficit with the U.S. was $232.5 billion, and this year will be bigger, even without importing pet food or toxic children’s toys. The government has been unable to restrain export growth, so in order to reduce inflationary pressures they drain billions of dollars a month from their economy through bond sales. As a result, they have piled up the world’s biggest foreign reserves at $1.3 trillion. They are very likely to start trading dollars for euros or yen, putting more downward pressure on the dollar and upward pressure on inflation. These kinds of imbalances are never good for the economy or the stock market, because they always come to an end with a painful period of adjustment.

UTStarcom (UTSI) jumped Monday after they beat sales expectations for the third quarter. I was glad to see this report, as it is the first quarter in about six to be reported on time, and all the accounting and SEC issues are finally behind us.

The company announced after the close last Friday, with sales up 8% to $646.5 million, well above the consensus for $592.1 million. They lost 46 cents a share, as expected. Management said that in the December quarter they will match or beat September results, which is well above Street expectations for $612 million in sales.

Business was strong across the board, but especially in the personal communications division (handsets and handheld computers) that they bought from Audiovox. Broadband and wireless are also doing well.

On the conference call, management said that they can reduce R&D to between 10% and 11% of revenue, and general and administrative expenses to between 13% and 14% by late 2008 or early 2009. UTSI should be profitable in 2009 and maybe in 2008 — we’ll get an update on that possibility on the next earnings call.

Their Internet Protocol Televison (IPTV) business is doing very well. They’ve booked $240 million in contracts and recognized $80 million in revenues as these systems are steadily installed. They have deployments in China, Japan, India and Brazil.

Finally, UTSI expects to announce a worldwide OEM agreement with a very large Asian global partner shortly, and they plan to have two or three worldwide OEM partners in 2008. These partners will put their private labels on UTSI products, especially handsets. It looks like the company has passed the low point, but I still want to keep UTSI as a hold for now, while maintaining the $10 target. If they can put a good December quarter in place, I’ll move it back to a buy.

Content on Demand MegaShift

Strong sales of consumer electronics caused the Semiconductor Industry Association to raise their forecast for worldwide chip sales this year to $257.1 billion, up 3.8% from 2006. Their June forecast was +1.8%, and I still think that they are a little low. Memory chip sales will be down due to poor pricing, so the rest of the business is healthier than the overall growth number suggests.

Harmonic (HLIT) drew a question from an anonymous subscriber: “Please comment on how this will impact HLIT: Comcast’s CTO Tony Werner last week stated that Comcast will be launching DOCSIS 3.0 in a ‘substantive portion of our footprint’ in 2008. He also noted that Comcast will be able to reclaim 240 MHz of spectrum by using switched digital video and a new video compression scheme — which Comcast says should improve bandwidth efficiency on Comcast’s network by 50%.”

DOCSIS 3.0 is a much faster communications standard that requires hardware upgrades to a lot of the Comcast network. I was a Comcast cable modem subscriber for a little while this summer, and my connection was not DOCSIS 3.0 ready. But this upgrade is actually good for Harmonic for two reasons: (1) a major reason for the upgrade is to handle more video, which means more business for HLIT; and (2) Harmonic is a leading provider of the switched digital products that will help Comcast improve bandwidth efficiency.

At a UBS conference, Harmonic’s CEO said that their total addressable market in 2009 will be $4 billion, thanks to the way that they are broadening their product line. With so many good things on the horizon for Harmonic, I don’t know what is behind the drop over the last couple of days, but HLIT remains a buy under $12 for my $18 target.

Intel (INTC) on Monday unveiled the new Penryn chip family, which uses 45-nanometer processing. At 45 nanometers, they can fit 30 million transistors on the head of a pin. Penryn also incorporates the metallic alloy hafnium in place of silicon dioxide as an insulator. This is the most dramatic shift in chip production in 40 years. It is that technology that makes me confident Moore’s Law and the whole technology revolution will continue past 2010 by at least another 10 years. This new technology also underlies Intel’s Nehalem chip family coming in 2008, and the Silverthorne processor family about to be announced to compact, portable Internet-connected devices like ultra-mobile PCs. I am making the Intel January 2009 LEAP calls with a $22.50 strike price (VNLAX) a Top Buy. They are trading just under my $6 buy limit. The target price is $12.50 at expiration, an easy double.

QuickLogic (QUIK) won an important contract with a “Tier One smartphone supplier” that will use QUIK’s flexible chips to produce 12 to 18 products in a new line totaling over $30 million in sales for QuickLogic. That’s just about as much as the company did from all sources for the last 12 months. Of course, that could be over a one- to two-year time period, but still, this is a big win for the company. QUIK is a Top Buy while it is (barely) under $4 for my $8 target. You need to have a position in this stock.

Silicon Image (SIMG) held their Analyst Day on Monday, not the January 24 date that I mentioned in the last issue. Although it was a good meeting, it didn’t help the stock. Analysts want to see their 2008 guidance on the January conference call to see if the company confirms that revenues could be down in 2008. I expect management to back away from that part of their forecast, but there’s nothing to do but wait for it. Certainly, consumer electronics with HDMI chips are going to be strong sellers this holiday season, and that should help support the stock. SIMG is a buy up to $13 for my $20 target, but I am taking it off the Top Buy list until management raises the lower end of their 2008 guidance.

Telkonet (TKO) reported a good quarter, with revenues up 25% from the June quarter to $4.6 million, and a seven-cent-per-share loss. Best of all, they actually held a conference call — but it was before the earnings release! President Ron Pickett read a press release on the “business update” and then turned the call over to Jason Tienor, the Chief Operating Officer, who I expect to become CEO any day now.

Management said that the ramp up in business from the second to third quarter is continuing into the fourth quarter, and they should be cash flow positive this quarter and turn profitable next year. In 2008, the joint venture with GE Energy will kick in, and TKO’s energy management products are now reimbursed by many utilities, making it a much easier sale to the corporate customer.

Subscriber Jim asked: “What is your take on TKO’s business update call on Thursday? Sounded good but we’ve heard most of it before. If all comes to pass, $15 as a target price may be way low. Thanks!”

Jim, from your lips to God’s ears. I still rate TKO a buy up to $5 for a $15 target after Tienor takes over as CEO.

New Energy Technology MegaShift

Infinity Energy Resources (IFNY) reported third-quarter results and finally held a conference call, but the stock was knocked under $1 a share following the report. First, the results: They did $2.5 million in sales and reported a paper profit of 18 cents a share. But the 18 cents was after a positive 28-cent adjustment required by energy company accounting rules for changes in derivative values, so they actually lost 10 cents a share.

The situation at Amegey Bank, which involves the sale of assets, is actually more important than the results. To recap quickly, the company went into technical default at the end of June, and the bank agreed to forbear on calling the $22 million loan until November 30. But they reduced the credit line from $50 million to $10.5 million, and the company agreed to repay the $11.5 million deficiency by the end of November. This will happen by selling assets.

On the call, management said that they signed a terms sheet to bring in a partner on the Barnett Shale wells, and as soon as Amegey Bank signs off, they can go forward. The partner will invest up to $20 million in a drilling program, and Infinity will have a carried interest. Infinity can then use the cash flow to pursue their own drilling program in Comanche County, using what they’ve learned in Erath and Hamilton County.

They’ve also signed a terms sheet to sell their producing wells in the Rockies, retaining the exploration assets and an opportunity to invest in new wells for a carried interest. Management emphasized that this was not a fire sale, and as soon as the bank blesses the transaction, we should get numbers.

Finally, Infinity should be about ready to move forward on their Nicaraguan concession, as the two regional governments that were suing the federal government over the process have come to a settlement. All of these entities are eager to see oil start flowing, as they want their tax revenues. This is a huge field that can make INFY a double-digit stock.

Stanton Ross, the CEO, pointed out that he was the original founder of Infinity, and when he stepped down in June 2005 the stock was at $10.40. He has now stepped back in as the CEO, changed the management team, and is determined to get “an appreciable value” back into Infinity for the shareholders. Makes sense, as he is one of the largest individual shareholders. I still think IFNY is a buy up to $3, but I’m reducing the target price from $10 to $7. Once I know the terms of the Rockies sale, I expect to make the stock a Top Buy again.