The Thanksgiving holiday is just a week away. And I’m sure that many of you are preparing for your own family traditions. This could be the traditional meal of turkey and stuffing, or the anticipation of hitting the stores bright and early on Friday, one of the biggest shopping days of the year — Black Friday.

Well, the market also had something that was practically a tradition for this day, as well. The market’s movement on the Friday after Thanksgiving was an indicator of what was coming for the rest of the year. But that was before everyone decided to make it a four-day holiday. So, even though the market will be open, few people will care.

And this lack of attention to the market next Friday may just be what is needed to put a final top in on this market run. So far, it has been a textbook upturn, breaking each resistance level, then falling back to test it and building up enough bearish sentiment to fuel another run up. Wednesday’s run to 1401 on the S&P 500 and quick drop back probably means we’ll see another little test down to the last breakout level at 1390. But that should be enough to spark a quick run back up to 1415 next week, and it now looks like that will be the top for the move. I had thought the S&P might stretch as high as 1440, and while that still could happen, it is becoming the low-probability outcome. A spike up to 1415 just before the holiday, followed by a quick rejection, will suggest the upturn is over, and a break under 1405 will be pretty compelling. After a parabolic move like the one we’ve had, it takes a sudden, sharp move down to tell us the top is in. When it happens, it will be obvious that the downturn for the end of the year is here. I’ll be sure to alert you when this happens and what you should do.

We’re on the Right Path

Five months ago, in the June 22 Radar Report, I said: “Most companies will have to be cautious on their earnings outlook for the second half of the year due to their exposure to a slowing economy, caused by past and future Fed rate increases, high oil prices and the housing implosion.

“Other late-cycle companies will have decent outlooks for this year due to the strength in capital spending, but Wall Street knows that capital spending is a lagging indicator, and they will not pay for good 2006 earnings when they know 2007 will be down.”

Although the market has ignored the weakening economic climate so far, and even made it a positive because it will force the Fed to cut interest rates, it looks to me like my forecast is about to come true.

The hedge funds have had a bad year to date, and don’t want to miss a fourth-quarter rally. So, they just poured money into the market by the billions. Unfortunately for them, I think we just had most of the fourth-quarter rally we’re going to get. And the cruelest fate would be to have a down market in December just as they have all piled in on the long side — and the market is very good at dealing out cruel fates.

Besides the market’s usual determination to take as much money as possible away from as many people as possible, there’s some solid data that points to a weak end of 2006. I am frankly baffled at the cheerleaders who say business spending may be slowing, but consumer spending is holding up very well in spite of the housing downturn, so don’t worry, be happy. The numbers just are not there. Every time we get a major retail sales report, as we did this week, the gurus say that aside from gasoline station sales, which are depressed by the sharply lower price of gas, consumer spending is just fine.

But in September, retail sales dropped a revised 0.8%, while gas station sales fell 11.1%. In October, retail sales fell 0.2%, while gas station sales fell 6.0%. If consumers are taking their savings at the gas pump and spending them elsewhere, why are overall retail sales dropping? And how is GDP going to grow when retail sales are falling, especially after three strong quarters of inventory accumulation? This is how recessions begin.

Gas is down from $3.04 a gallon in the first week of August to $2.23 last week, and the money consumers are saving is not igoing into other purchases. The drop in spending on gas since July is $6.7 billion, while spending on everything else is up only $2.9 billion.

I believe falling home prices are finally biting into consumer behavior, as people feel less wealthy, more uncertain and less able to pull money out in a refinancing. The crummy revenue and earnings numbers from Home Depot show that the housing decline has followed its usual pattern as the weakness starts in the volume of home sales, then hits home prices, then hits building materials as contractors pull back and finally hits remodelers and do-it-yourselfers as the whole sector freezes up. In the September quarter, sales at Home Depot stores open more than one year fell 5.1%.

The median price of an existing home fell 2.5% year-over-year in September, which is the biggest decline in the history of that index. The number of new and existing single-family homes sold fell 15.7% in September from a year earlier, while the number of homes for sale increased 30.4%.

Housing is now twice as large as stocks on individuals’ balance sheets, and 69% of U.S. households own their home. So, a downturn there is hitting far more people than the 2000 to 2001 downturn in the stock market. It seems totally unrealistic to say that everything is hunky-dory and 2007 is bound to be the best stock market year of the decade. There’s a very difficult adjustment directly ahead as the Fed balances the developing economic slowdown against stubbornly high inflation numbers. And when the Fed does decide to move, we can expect to wait the usual six-month lag before whatever they do has any meaningful effect on the economy.

In the October 26 Radar Report, I suggested putting a third to a half of your cash back into stocks, as it looked like the market might not have any decline and just take off on the 2007 to 2008 run that is coming. The S&P is up a bit more since then. But the parabolic pattern of the advance, the actions of the hedge funds and the housing/consumer spending/GDP growth issues probably mean we should now take some money off the table. I’ve issued sell recommendations lately on Symantec (SYMC) and Check Point Systems (CHKP). Nvidia is paying cash for PortalPlayer (PLAY), so there is no need to trim that one — we can safely wait to see if a higher bid develops. I would not sell any of the New Energy Technology MegaShift stocks, as the developing El Niño should not be strong enough to prevent a cold winter and seasonal spikes in natural gas and heating oil usage and prices.

Otherwise, you should pick a target cash level and sell a little of everything to get there. For most investors, about 50% in cash is a good target right now. It is always easier to sell a little more of the big, liquid stocks like Comcast (CMCSA) and Huaneng Power (HNP), and it doesn’t make sense to sell very low-priced stocks like MobilePro (MOBL). Just get yourself in a position where a sudden 15% drop in the market won’t hurt you, and you’ll have enough cash to take advantage of the bargains that will abound. Heck, maybe 2007 really will turn out to be the best year of the decade — but my research indicates that it will take off from significantly lower levels. So, we should have an opportunity to make some real money by getting 100% back into the market after the next decline.

Avian Flu MegaShift

Crucell (CRXL) reported a 37% jump in September-quarter sales from the June quarter, due to customers stocking vaccines for the beginning of flu season. This happens every year, but they said revenues this year will be more concentrated than usual in the December quarter due to a late start for the season, plus the October introduction of their 5-in-1 vaccine for children’s diseases. Crucell maintained their guidance for sales this year — between $179 million and $192 million — but they added up to $17.9 million to their prior cash burn estimate of $42.2 million to $48.6 million, attributing most of the difference to the acquisition of Berna. They did not change their goal to achieve cash breakeven in 2007.

In the H5N1 area, Crucell got a European Union grant to work on a new type of H5N1 vaccine. An egg-based vaccine started Phase I/II trials in May, with results expected in the second half of 2007. The Phase I trial to compare a cell-line based vaccine to the egg-based alternatives against the related H7N1 virus started in September.

In other clinical activity, their malaria vaccine will start Phase I trials this quarter, and their tuberculosis vaccine started Phase I in October. In preclinical studies, that vaccine provided effective protection after a single shot. An ebola vaccine entered Phase I trials in September at the National Institute of Health (NIH), with results expected in about a year. The FDA approved an Investigational New Drug application for Phase I studies of their rabies vaccine in October, with trials beginning in the U.S. in the current quarter and in the Philippines in the March quarter.

Crucell’s West Nile virus vaccine is wrapping up Phase I trials now, with results expected by the end of the year. This is a double-blind, placebo controlled study, and so in addition to the usual safety data, we should get some hints on efficacy. I am expecting positive news and a nice bump to the stock price. Flavimun, their vaccine against yellow fever, is wrapping up its Phase III studies, and should be approved and launched in 2007. Finally, they are negotiating right now with the FDA for U.S. approval of Epaxal, a hepatitis A vaccine, which is already approved overseas for travelers to areas where hepatitis A is endemic. This is a huge pipeline.

The stock rallied for two days after the conference call, but they held an analyst day in New York today and really didn’t say anything new, yet the stock gave back about half of the recent gain. With flu season heating up and avian flu about to get back into the headlines, thanks to bird migrations, CRXL remains a buy up to $28 for my $50 target.

Gilead Sciences (GILD) may see Tamiflu get an “abnormal behavior” label, but I do not think it will affect sales of Tamiflu or the GILD stock. The FDA has expanded the label to require “close monitoring” or signs of abnormal behavior, where the previous label mentioned “seizure and confusion” in some patients. There have been 103 reports of delirium, hallucinations and other unusual psychiatric behavior in children treated with the drug, mostly Japanese. Japan has the highest usage of Tamiflu in the world — between 2001 and 2005, it was prescribed 24.5 million times in Japan and only 6.5 million times in the U.S., even though the U.S. population is twice that of Japan.

Both Roche, which sells Tamiflu and pays Gilead a fat royalty, and the FDA pointed out that it may be severe cases of the flu itself causing the abnormal behavior, so they could not recommend stopping Tamiflu because that might make patients worse. Even if that eventually was required, the incidence of abnormal behavior is so small that it wouldn’t affect sales. What is far more interesting to me is the idea that usage in the U.S. will steadily increase towards Japanese levels, which would equate to about 10 million prescriptions a year just for normal flu, let alone bird flu. The two Gilead LEAP call options remain holds. The January 2007 $60 contract (GDQAL) has a $20 target and the January 2008 $50 contract (YGDAJ) has a $30 target.

Biotech MegaShift

eResearch (ERES) bottomed after the earnings report that I covered in last week’s Radar Report, and is grinding back up. Michael K wrote: “With all due respect, unlike you, I thought the ERES conference call was very disappointing. Having said that, could you please tell us what kind of numbers (give or take) would ERES have to do to reach $25, and what would it take to get there? I would really appreciate a response to this as I and two other of your subscribers who I know have been averaging down from about $13, and getting absolutely frantic.”

A good question. And I always welcome questions like this, especially if you are feeling frantic about a position. It’s almost impossible to make good decisions about a stock if you are being driven by emotions. As I said last week, it was an unusual conference call. I can see why you would call it disappointing, because the immediate content — reduced expectations — was negative. But what I liked was the new management team setting expectations very low and changing their whole tone about how quickly backlog can turn into trials.

At $25 a share, ERES would have a market capitalization of $1.25 billion — a bit over the “small cap” designation. They can get there in two ways. One would be to turn their orders into revenues of about $120 million a year, and then have the stock sell for 10X sales, based on the company’s dominance of a non-cyclical, rapidly-growing sector. The other way is to get the company back to normal profitability, report 60 cents a share on that $120 million in sales and have the stock sell for 42X earnings. All of these goals are in sight before the end of 2007, even if it is the December 2007 quarterly “run rate.” So ERES remains a buy up to $16 for my $30 target, as 2007 will just be one step on a multiyear ladder.

Geron (GERN) may have been a bigger winner than Nancy Pelosi from last week’s elections. Voters not only rejected the current Congressional leadership, they said that they want stem-cell research to continue. Missouri voters passed a proposal to allow stem-cell research in the state, and these centrist voters sent a powerful message to other states that want their medical schools and companies to keep up with the technology. The Stowers Institute for Medical Research, a stem-cell research lab in Kansas City, said that they will go ahead with an expansion that had been on hold pending the outcome of the election.

With the Democrats in control of Congress, there will be an intense push in 2007 for Congressional funding of stem cell research, with Republicans getting lobbied by universities and medical schools in their districts. Nancy Pelosi already said that she will make federal support of stem-cell research a priority of the new Congress, yet this is the only area I remember President Bush exercising his veto in the last six years. There will be a lot of publicity over what stem cells can do, and Geron is the clear leader. Buy GERN while it is under $9 for a trade to $18.

Metabolic Pharmaceuticals (MBLPF) drew a question from Jo Ann: ” Why does Metabolic Pharmaceuticals have a NASDAQ symbol of MBLPY at $6.00 a share now, instead of the MBLPF at $0.59 on the other sites? I see that the MBLPY is Lt verses the Ltd but why are there two at different prices?”

Jo Ann, I believe MBLPY is an American Depository Receipt, each of which represents ten common shares. MBLPF is the single share, as traded in Australia under MBP. MBLPY doesn’t trade, so buy MBP in Australia if your broker can do that, or MBLPF on the pink sheets in the U.S. MBLPF remains a buy under 56 cents, and MBP under 75 Australian cents.

Content on Demand

Telkonet (TKO) drew a question from Norman: “When will be the date for TKO to release its earnings?” They don’t do a press release or a conference call, they just file their 10-Q, and then I call them for a discussion. It usually happens around this time, seven or eight weeks after the end of the quarter, but sometimes it is ten or eleven weeks. There is no steady pattern. TKO remains a Top Buy up to $5 for my $15 target.

New Energy Technology MegaShift

Infinity Energy (IFNY) reported an excellent quarter, but the selling in the stock continued. Here’s why:

First, it was a super quarter, with record sales of $14.8 million, up 17% from the June quarter and 68% year-over-year. They also had record quarterly oil and gas production, up 18% from the June quarter and 37% year-over-year.

The oilfield services operations had record sales of $11.1 million, up 19% from the June period and 88% year-over-year. These operations are under contract to be sold, with the proceeds earmarked to pay off the current senior lender, who is killing the stock by converting his bonds every time he has a chance and selling an average of 45,000 shares of stock a day. Of course, the market makers have dropped their bids to take him to the cleaners.

The buyer is finishing their due diligence now, and the deal should close before the end of the year. As soon as the due diligence is done, Infinity will notify the senior lender that the note is going to be paid off early, thereby making the lender an insider and terminating their ability to sell. On the conference call, which was contentious at times, management said that they thought the selling was continuing only because the senior lender doesn’t believe the sale of the oilfield services operation will close, because, otherwise, they are shooting themselves in the foot for no reason. It is a bizarre situation, but it is giving all of us a chance to buy the stock at a level that has little to do with INFY’s assets or future.

After the deal closes and this lender is gone, the company will be able to increase their very successful drilling program, and the stock should rebound sharply. The only other negative is the recent election of Daniel Ortega in Nicaragua, which drew several emails, including this from Jim: “Will the return of Ortega and the Sandinistas to power in Nicaragua adversely affect IFNY? His rapacious greed and corruption are legendary (even among Latin American dictators, where rapacious greed and corruption are Standard Operating Procedure!), and I doubt that the leopard has changed his spots. Is there a real danger of him wiping out the IFNY contracts or ‘renegotiating’ the terms?”

On the conference call, management said that they look at Ortega’s election as a positive because he wants to keep their new-found prosperity growing and has been encouraging investment in the area. Maybe he just wants to steal the tax and royalty revenues, but I think he’s a lot more interested in having big oil companies come in and find oil right now rather than voiding Infinity’s leases. Maybe he’ll nationalize everything in ten years after all the oil has been found on Exxon’s nickel, but in the meantime we could make a fortune in INFY. INFY is a Top Buy up to $5, and you should have a full position before they close the sale of the oilfield services division, with a first target of $9.

WiMAX MegaShift

Airspan (AIRN) reported soft September-quarter sales of $27.3 million, with a 23 cent per share pro forma loss. Like Alvarion and Terabeam, the slow rollout of WiMAX is hurting them right now, but this is a very temporary situation. In the last couple of days, they have announced the deployment of Australia’s first commercial WiMAX network with Buzz Regional Broadband, and a MicroMAX network in Taiwan through TW-Airnet. This is the first part of a nationwide WiMAX deployment. AIRN remains a buy all the way up to $6 for my $10 target.

MobilePro (MOBL) has a new competitor in municipal Wi-Fi — sort of. Microsoft said that they will launch a pilot program in Portland, Oregon, in a joint venture with MetroFi. This is an advertising-supported service, and the real purpose is to give Microsoft a real-time lab to understand the market, so they don’t get too far behind Google. Google is funding a network in Mountain View and partnering with Earthlink in San Francisco for the same reason and has indicated that they aren’t interested in doing any more cities. So neither Microsoft nor Google is really a competitor to MobilePro for the other 700 cities and towns that need someone to install a Wi-Fi network.

However, the stock took a hit on the news, although I’m not sure it was more than coincidence. Scott wrote: “What is happening with MOBL? They dropped another 20% today. Why are you continuing to recommend this loser?”

Scott, meet Peter, who wrote: “I listened to the conference call today and I like what Jay Wright had to say. Possible spin off of the wireless piece. Major announcement by yearend. Today they announced the Yahoo deal. Any comments?”

Last Thursday, MOBL reported September-quarter sales of $23.4 million, with a proforma loss of $3.1 million. They said that AFN, their landline telephone services operation, has a major new contract going on line this quarter that will generate $3 million to $5 million a quarter next year. Kite Wireless, one of the Wi-Fi operations, booked its first revenues in Tempe, Arizona, and this week they announced the commercial launch of the Wi-Fi network in Farmers Branch, Texas. They have partnered with Yahoo to provide the search portal for the Tempe system.

On financing, MOBL has some positive response from a Fortune 500 company for financing, and they are looking at some attractive divestitures, which they could use to pay off the debt. Even the wireless division could be spun off at the right price. They have put acquisition talks on hold for the moment due to their low stock price. I expect there will be major announcements coming by yearend. This is a very smart management that will only get rich if we get rich. MOBL is in better shape today than the day I recommended it, and remains a buy all the way up to 25 cents a share for my 60 cent target.

Terabeam (TRBM) announced disappointing September-quarter results, with sales of $17.9 million, down 14% from the June quarter and down 1% from last year. They lost 15 cents a share proforma compared to the 14 cents lost in the June quarter, and also took 48 cents in various charges.

Like Alvarion and Airspan, they are being punished for the slow takeoff of WiMAX. But also like ALVR and AIRN, they will benefit enormously from the inevitable widespread deployment of WiMAX due to the huge push by Intel, Sprint, Motorola and Craig McCaw’s ClearWire. TRBM remains a buy up to $4 for my $7 target.