In last week’s Radar Report, I said that I would not be surprised to see the S&P 500 run up to significant resistance at 1415, and then show a 10-point drop in an hour after 1415 was hit. Well, the very next day the S&P hit 1408, and after a low-volume drift down during last Friday’s half-day session, it dropped 14 points in two hours on Monday and closed almost 26 points below last Wednesday’s high. That probably marked the phase change in the market I’ve been waiting for.

It is normal for the market to rally back to test the breakdown point from below, which is happening in today’s, and the past couple days’, action. Most of the media commentary that I’ve seen is calling this a “buy the dip” opportunity, and there is very little fear that the drop earlier this week could develop into something worse. Assuming that the market can’t get through 1408 for any meaningful length of time, I’m looking for the S&P to drop below 1377 to1380, which would then set off a scary plunge below 1300 and take some of the complacency out of the market. If we get this immediate plunge that I’m looking for, it will be time for us to reload for the two-year bull market that is about to begin.

I think that would be the best scenario to set up a good market run in 2007, even as the economy slows. But if we see a different pattern of a W-shaped top with several touches of 1415 before the real decline gets underway, I would be concerned that the whole first half of 2007 could be marked by a bear market. An even worse scenario would be if the market breaks through 1415 and spikes up to 1440. Because then the stage would be set for a really dramatic decline of 250 to 300 points. Although, judging by the action in the market so far, that is a low-probability scenario. Insiders are very tilted to the sell side right now, and any higher prices would be met by even heavier selling that should prevent the S&P from hitting the 1440 level. But it is still in the realm of possibility that the S&P could breach that level, so I’m not ready to rule it out completely just yet.

Consumer Spending

Right now, the fundamental driver of market weakness is the economic weakness that is finally becoming obvious to most investors. Yesterday’s small upward revision in the September-quarter GDP growth rate from 1.6% to 2.2% was met by comments like: “This report will go a long way toward marginalizing the market’s recession fears” from Action Economics, and “The upward revised real GDP data is a perfect recipe for a ‘soft landing’ economic soufflé” from the chief economist for PNC Bank.

But the upward revision came from a greater building of inventories than was originally assumed, which is bad news for production in the current quarter, and lower imports, which signals a weaker consumer. In fact, consumer spending was slightly slower than first thought. So, inventories are higher and the consumer is weaker than previously thought — this is supposed to marginalize recession fears and suggest a soft landing? I don’t think so.

I am watching how the holiday retail season develops, but the early read is that spending is up due to huge discounts being offered earlier than last year, not because consumers are feeling great about increasing their budgets for the whole season. The Black Friday weekend showed an impressive 18.9% spending increase from last year due to the one-time discounts on loss-leader, limited quantities of LCD TVs, home theatres and such. I am watching the sales numbers closely to track what the consumer is really doing and thinking, and I don’t think the strength will hold up, but that’s just a guess — we’ll let the ongoing numbers guide us. I’ll be quick to say that I was wrong if last weekend’s spending growth rate continues. But Wal-Mart reporting their worst monthly sales growth since 1996 is not a good omen for the soft landing thesis.

The housing market also remains very weak, in spite of a small uptick in the sale of existing homes, thanks to lower mortgage rates. Home prices fell or were flat in seven of 10 major U.S. metropolitan areas in September compared with August, and annual price gains slowed to their lowest rate in nine years. Prices fell in the District of Columbia, Boston, Denver, New York, San Diego and San Francisco. As I said last week, it is not good sign for economic growth if the housing market is declining, as housing accounted for 40% of the growth and job creation in the last upturn.

A Bold Move?

We all knew that one of the biggest U.S. industries was in deep trouble, but I found yesterday’s news from Ford Motor Company shocking. They said that 38,000 of their 83,000 blue-collar union workers have accepted an employment buyout. They are cutting 46% of their production workforce! They had previously expected to cut 25,000 to 30,000 by the end of 2008 — cutting 38,000 by the end of 2006 is a real body blow to the Midwest economy. Ford also said that it will borrow $18 billion to “fund its restructuring and cushion against a possible recession.”

Yes, a very cyclical company is leveraging itself up with debt going into a recession. Why would they do that? I think the primary reason is that if you know you are going to be cash flow negative for a long time, you borrow all the money you can anywhere you can to try to survive. The less likely possibility is that they are going to put it in the bank, and then they’ll have it to buy assets cheaply at the bottom of the downturn. But Ford seems to be shrinking, not growing, so I think the first reason is far more likely.

What Can Those 38,000 People Do?

Learn computers and Internet marketing. Go online. Start a small service business. And make more money than they did as UAW (United Auto Workers) members.

Today is a day to celebrate Moore’s Law. I’ve talked about this from time to time. Gordon Moore, a founder and former CEO of Intel, coined Moore’s Law, which states that the cost of doing anything with a computer would fall 50% every 18 months. Today, that inexorable decline brought the cost of executing one million instructions per second (MIPS) below one penny. The new Intel Core Duo processor that runs at 2.13 gigahertz, which equates to just over 20,000 MIPS, is down to $200 retail and about $180 for volume purchases. If you divide $200 by 20,000 MIPS, you get one penny per MIPS.

When I started my first technology investment newsletter in 1982, I bought an IBM PC with an Intel 80286 processor running at six megahertz that could do 0.9 MIPS. The computer cost me $3,000, and then I paid another $2,000 for a five megabyte Seagate hard disk drive. As I recall, the processor alone sold retail for $950, so my cost per MIPS was about $1,055. Thanks to Moore’s Law, the cost of computing went from $1,055 per MIPS to one penny in 24 years, almost to the day. A megabyte of disk storage today costs three cents, down from $400 per megabyte when I bought my Seagate drive in 1982. DRAM storage costs have been on a similar downward spiral.

And that, folks, is why the technology revolution is unstoppable. I had been worried that Moore’s Law might run out of gas around 2010 to 2012, because that’s as far as the semiconductor equipment roadmap goes, based on current technology. But Intel told me that they now think they know how to stay on the Moore’s Law curve past 2020. That means every ordinary $1,000 multimedia PC will have the intelligence of a human being by 2018 — a 24/7 assistant that never takes coffee breaks or vacations, and never wants a raise. The changes coming in our society — the way we work, play, recreate, communicate and live — are going to be bigger than what we’ve seen in the last 24 years. That’s why I hope as many of those Ford workers as possible spend their buyout bonus on getting computer/Internet training and starting a business — the opportunities in the tech sector are immeasurable.

I know that changing one’s thinking from the economics of scarcity to the economics of abundance is not easy. But “freeconomics” means looking at your numerous racks of CDs and thinking: “Wait a minute — if the electronics are free, why can’t I carry 10,000 songs in my pocket?”

A column by Michael Schrage in the Financial Times talked about the power of free: “Never in history has so much innovation been offered to so many for so little. The world’s most exciting businesses — technology, transport, media, medicine and finance — are increasingly defined by the word ‘free’. Whereas Wal-Mart, the world’s largest retailer, promises ‘everyday low prices,’ entrepreneurs and ultra-competitive incumbents develop business models predicated on providing more for free. It is a difficult proposition to beat.”

If that isn’t enough change for you, the brilliant and often-accurate technology forecaster Ray Kurzweil says that by 2020 we’ll start to see the merger of computer and human intelligence, which will eventually enable people to live forever. Kurzweil’s book, The Singularity Is Near, forecasts that by the late 2020s, nanobots the size of blood cells will travel through your bloodstream, fixing diseased or aging organs. By the late 2030s, computers will back up human memories. Around the same time, scientists will transform your skin cells into young versions of other cell types, then grow those cells into new, young organs, and transplant them to rejuvenate your body to stay eternally young and healthy. Or they may just infuse the new cells and let them find and rejuvenate the organ they are targeting. If you can make it another 15 to 30 years, you have a good chance of living forever. Before that great day, Kurzweil says the common cold will be history within 10 years.

By 2045, collective computer intelligence will be one billion times as much as total human intelligence today, and computers will design and manufacture their own upgrades — no human will be able to understand exactly what is going on. Technological progress in the 21st century will be about 1,000 times as much as that in the 20th century. By the early 2020s, instead of making a cell phone call we will “meet” someone in a virtual world, take a walk with them in a virtual park and talk. Conference “calls” will turn into virtual meetings in places like Maui, or maybe a factory in Thailand that is the subject of the call. When you are walking down the street and see someone you’ve met before, their name and background info will be projected on your retina. Retinal projection will replace CRT and LCD computer displays and TVs.

Whether it’s taking place in a laboratory or someone’s garage, the drive for new technology is already in gear and the groundwork is being laid. And while I know that many of these innovations are years away, there are still plenty of interesting products and opportunities out there right now. Some are even the most popular items on store shelves. So, in next week’s issue, I’m going to talk about the hottest technology gifts for this holiday season — some widely known, and some surprises. That’s an issue I’ll be able to write every year for the rest of this century, and if Kurzweil is correct, I’ll be around to write it and there will be no shortage of MegaShifts for us to invest in — ever.

Until those technologies develop, we’ll continue to profit from innovation and news events in our present-day MegaShifts.

Avian Flu MegaShift

In a bizarre response to a confirmed case of H5N1 bird flu in domestic chickens, South Korean officials plan to kill 236,000 chickens and destroy six million eggs within a 1,650-foot radius of the outbreak site. That’s a circle with a diameter of five-eighths of a mile, so those chickens are really packed in. They are also going to kill all the pigs, which some other Asian countries have done in similar circumstances. But here’s the bizarre part — they are going to slaughter all the dogs and cats in the area, even though there is no evidence that the virus passes from dogs or cats to humans. Apparently, they did the same thing in 2003, and now like good bureaucrats, they have a precedent and don’t have to think about it.

I had a question from Dave: “Since you follow Avian Flu closely, I wanted to get your opinion on a small company that has an anti-bacterial hand soap that has a 99.9% effectiveness at killing avian flu on contact and continues up to four hours. SKVI is the company and it seems pretty cheap if avian flu gets worse. Any feedback on this stock is greatly appreciated.”

Like all viruses, H5N1 can be killed by temperatures of 107 degrees or above, just a bit warmer than the average hot tub. That’s why your body responds to an infection with an elevated temperature — it is trying to kill the invaders. Of course, 107 degrees internally will make an adult feel terrible, but 107 degrees on your hands is just hot water. Any hand soap probably will do the same thing, and there’s no special reason an anti-bacterial soap would kill a virus. Skinvisible (SKVI) does have technology that holds the anti-bacterial material on the skin for longer than regular soap, but this 26-cent stock with a $17 million market cap, five employees and no earnings doesn’t look cheap to me.

Gilead (GILD) drew a question from Jennifer: “I am interested in buying the 2008 LEAP. Why do you suggest buying the $50 strike price instead of the $65 strike price? The current GILD price is $66.55.”

My original target for GILD by the expiration of the 2008 January $50 LEAP (YGDAJ) was $70, when the common stock was at $50. I was, and am still, looking for a $30 target for the LEAP, which then cost less than $10. The $65 contract would cost you over $10 now, so you would lose money at the expiration. Of course, GILD could be much higher by January 2008 if the H5N1 virus shows up in the U.S. or goes airborne in Asia. That would make the $65 contract a winner, too. But instead of scaling up with an additional recommendation of a January 2008 LEAP with a higher strike price, I would much rather see you load up on BioCryst (BCRX) at these levels. It costs about the same as the Gilead $65 LEAP, has the same $30 target as the January 2008 Gilead contract and never expires. Plus, at this time, both Gilead LEAPs are rated as a hold, not buy.

Biotech MegaShift

Affymetrix (AFFX) will benefit from new research published in Nature, Nature Genetics and Genome Research that showed individuals’ DNA can differ by as much as 10%. The accepted wisdom is that everyone on earth is 99.9% identical genetically, but this research compared DNA from 270 healthy people in China, Japan, Nigeria and the United States and found segments of genetic duplications and deletions called copy number variants (CNVs) that are as important as single nucleotide polymorphisms (SNPs) in explaining the differences between people. The CNVs explain how genes are involved in common diseases. For instance, resistance to infection by HIV is determined in part by multiple copies of the gene CCL3L1, which cannot be seen on a SNPs map. The researchers identified 1,447 different CNVs that cover about 12% of the human genome. About 285 of them are associated with diseases, including schizophrenia, psoriasis, coronary heart disease and congenital cataracts.

This basic research, done on AFFX equipment, led the vice chairman of the Department of Molecular and Human Genetics at the Baylor College of Medicine to say: “I believe this paper will change forever the field of human genetics. One can no longer consider human traits as resulting primarily from single base-pair changes or influenced only by SNPs.”

I had a question on AFFX from Bob: “I have a concern about AFFX. I wanted to hear your response to the thesis of shorting AFFX. The short argument is based on deteriorating fundamentals and market share; that customers are discontinuing use of AFFX’s systems; that ILMN is killing AFFX in genotyping; that AFFX is cutting prices and experiencing a declining gross margin; a rumor about customer concerns regarding the accuracy of AFFX’s expression data; and, another rumor that AFFX’s salesforce is weak (or, at least not as knowledgeable as that of ILMN). What do you think of all of this?”

I like Illumina (ILMN), although I think it is an expensive stock. The company specializes in genotyping, which is identifying the SNPs that cause genetic variations between individuals. They are acquiring Solexa, which focuses more on a macro approach to genetic sequencing, similar to the Affymetrix approach. That eventually should help them in the new world of CSVs as another cause of genetic variations.

Almost all of Affymetrix’ current problems, which created this buying opportunity, relate to getting their next-generation product into the market. To answer your specific questions, the new product is now selling and will eliminate the worries about deteriorating market share and customers discontinuing using AFFX gear. Illumina does do better than AFFX in genotyping today, but that has been a much smaller part of the market. Illumina will have to scramble to catch AFFX in identifying CSVs.

The broad genetic sequencing market is a billion dollar opportunity today, growing over 25% a year, so there is plenty of room for two or three winners. The periodic “accuracy of the data” rumor is just competitor talk. The sales force issue has a kernel of truth, as Affymetrix’ delays in getting their new product out caused some good salespeople to bail, often to Illumina. But there’s nothing like a hot new product to attract new salespeople.

I would like to own both Affymetrix and Illumina, but the opportunity today is to buy AFFX under my $24 limit in a broad market decline for my $40 target. During some future period when the hedge funds and momentum players clobber ILMN because they admit the Solexa acquisition will be dilutive in 2008 (which it will be, even though the company said it would be accretive), we will buy that one, too. Genetic expression is at the core of the Biotech MegaShift.

QLT (QLTI) drew a question from Russell: “On October 26, QLT gave a poor outlook for sales of Visudyne. Why are you hopeful? Is the stock at highs based on their other products? If we are in it because of Visudyne, is it time to sell?”

The stock went up because of their Dutch auction repurchase of shares, and also due to some positive clinical results. But we are in it because I believe that macular degeneration will be treated by combination therapies: Visudyne plus Lucentis, Visudyne plus Macugen, etc. That’s because the mechanism of action of Visudyne is totally different from Lucentis and Macugen, and there is no reason for doctors to not use combination therapy when so much is at stake. So far, Wall Street does not believe this scenario. But there are combination clinical trials underway, and I think QLT is a low-risk buy on dips under $8 for my first target of $16. I think we will see even higher levels before we sell this stock.

Content on Demand MegaShift

Telkonet (TKO) was the subject of an email from Cecile: “One year ago you wrote that the target price for ’06 should be $15! Now one year later it is at $2.70. What do you think about this stock for the next months? Are you still sure that your target price is achievable by the end of the year or at the beginning of next year?”

I still think TKO is going to be a $15 stock, but not by the end of the year or early next year. At this point, my target prices are “by the end of 2007,” with some being achieved earlier in the year and some later. TKO has some potentially explosive drivers, such as the military contract with EDS, that make the $15 target realistic. Buy TKO under $5 for my $15 target in 2007.

New Energy Technology MegaShift

The prices of oil and natural gas are rising as cold weather settles in, usage draws down stocks, and OPEC still leans towards further production cuts. T. Boone Pickens, who has correctly predicted rising energy prices for the past three years, said that U.S. crude oil will average $70 a barrel in 2007. He explained: “I keep thinking we’re right at the bottom on oil. I don’t see why the run is over if the global economy continues to grow.”

This is one of the big drivers for our New Energy Technology stocks. The other is the strategic desire to be much less dependent on importing oil from the volatile Middle East and a bunch of countries that don’t like us. Although these recommendations are up from their lows, this MegaShift is still an excellent place to put money for the next several years. The buy limits and target prices are listed on the website. My Top Buys include Connacher Oil & Gas (T.CLL) under $4.50 for a $7 target, Gasco Energy (GSX) under $4.50 for a $9 target, Infinity Energy Resources (IFNY) under $5 for my $9 target and Rentech (RTK) under $5 for an $11 target.

New Materials MegaShift

Integral Technologies (ITKG) went over my $4 target this week. The reason for the sudden jump up is that it is being promoted by another newsletter, and therefore, I think it could fall back from here. But this is a multiyear holding for us, and I don’t think we should try to time every little squiggle in the stock. I would not be surprised to see the stock back at $3 or over $5 in a month. Instead of selling, let’s watch what develops, and I will try to raise my buy limit to meet any meaningful dip, and give you a second chance to get on board or expand your holdings. Hold ITKG for now.

WiMAX MegaShift

MobilePro (MOBL) paid about $663,000 of the principal and interest due on their convertible note in stock, issuing 7,921,296 shares at an average price of 8.37 cents per share. The company had hoped to avoid the dilution of 1.4% by raising cash elsewhere, and there is another similar payment due in mid-February. I don’t like to see them issuing shares at such a low price anymore than you, or anymore than management, for that matter. The company needs to find a strategic partner to resolve this overhanging drain on the number of shares outstanding.

The stock has been weak because scheduled payments of $125,000 of principal are to be made weekly commencing January 2, 2007, and it is up to management to find a way to make them in cash instead of in stock. There are numerous valuable pieces in MOBL that can be sold or monetized to avoid further dilution. The company is not going to run out of money and disappear, as subscriber John worried — Cornell Capital is supplying them plenty of cash, but it is expensive money.

Dave asked: “I was wondering why there is so much insider selling going on with this stock at such a low price. It almost feels like desperate selling. Would appreciate your feedback.”

The only insider activity, filed on Form 4, is the CEO buying the stock around the first of every month — 31,000 shares in August, 26,000 in September, 33,000 in October and 41,000 in November. He buys about $5,000 worth of stock every month. I think Dave is referring to the S-3 registration statements for the stock that Cornell Capital is getting, which may or may not actually be sold.

The story of MobilePro is whether a very financially sophisticated ex-investment banker can take this agglomeration of assets, including the largest live municipal Wi-Fi sites, and turn it into a real company. I still think he can. Uncertainty over the financing and future dilution has the stock under 10 cents a share, but I still think it is a strong buy. I would use these prices to average down, and I am keeping MOBL as a buy all the way up to 25 cents for a first target of 60 cents. If they can leverage their Wi-Fi networks into WiMAX networks, this is going to be a 10- or 20-bagger from current levels.

I guess it’s just me, but the weakness in housing, consumer spending and now semiconductor orders is making me very nervous about the real pace of economic growth in the December and March quarters. With the Dow Jones Industrial Average hitting new highs almost every day, the “What, me worry?” market continues to roll on. The way that investors and “experts” are ignoring critical data that point to a downturn in the current and upcoming quarter has me shaking my head. Today, I’d like to take a look at three areas of the economy that point to trouble ahead, and hopefully, dispel any cheerleader speak you may have picked up by watching the tube.

Housing

Housing accounted for 40% of the growth and job creation in the last upturn, and it is now in a nasty down cycle. I’ve been using the phrase “falling apart” when discussing the housing market, and have had some emails questioning such strong language. But yesterday the National Association of Realtors published their latest quarterly survey, and its results validate my view that housing is in a tumble. The survey started with this wonderful first paragraph: “Conditions for home buyers improved during the third quarter as existing single-family home prices in many metropolitan areas experienced corrections, and most states saw sales activity below a year ago,, which helped to build housing inventories.”

If that isn’t a silver lining in sheep’s clothing, I don’t what is. Sure, it’s good news for the few people buying homes, but it’s very bad news for the huge number of people holding them. Sales activity fell in 38 states, with both coasts among the hardest hit. The chief economist said (my commentary in italics): “It’s no surprise that overall home prices are slightly below a year ago. We expect this trend to continue in the months ahead, but [cross your fingers] we’ll see modest appreciation in most of the country in 2007.”

If you need any further evidence on how long this housing nosedive is going to run, in a speech to a private group in Canada last month, Alan Greenspan said: “The worst of the housing slump is over.” I’m not sure why or how the worst is over, but Alan went on to tell the Canadians that the housing boom did not happen because of the “1% Fed funds rate or from the Fed’s easing. It came from the collapse of the Berlin Wall.” Honest. He really said that. Of course, if the housing bubble bursts on top of the Internet stock market bubble burst, his legacy may be a reputation as the double-bubble banker.

No matter what Alan thinks, last Friday, the Commerce Department said that October housing starts plunged 14.6% percent from September to a six-year low, and were down 27.4% from October 2005. Single-family housing starts have fallen by more than a third since the beginning of the year, and October housing permits declined for the ninth consecutive month — a record.

Consumer Spending

Consumer spending accounts for 70% of GDP. I went through these numbers here last week. As I said, I find it bizarre that some people who should know better are saying that consumers are picking up the torch as business spending slows down, or that the drop in gasoline prices means consumers are back to their old spending ways. Retail sales dropped 0.8% in September and 0.2% in October. The drop in spending on gasoline since July is $6.7 billion, while spending on everything else is up only $2.9 billion.

Semiconductors

As long-time readers know, I track semiconductor sales and orders very closely. Semiconductors are the oil of technology — they are everywhere — and it is very hard to have good PC sales, good cell phone sales and good consumer electronics sales, if you have poor semiconductor sales.

So, I was surprised when the Semiconductor Industry Association (SIA) put out their 2007 forecast this week, with hardly a tip of the hat to what has been happening in the marketplace. They said that consumer demand for electronics, especially cell phones, digital music players and digital televisions, will drive semiconductor sales up 10% in 2007 to $273.8 billion, up from a record $248.8 billion in 2006. Then they see another 10.8% growth in 2008 to $303.4 billion. Now, to be fair, that is a slightly lower forecast than the June update, when they expected 11% growth in 2007 and 12% growth in 2008. But they added: “We are in a very strong demand period with good inventory management and high capacity utilization.”

Oh, really? Consumer electronics only account for 19% of all semiconductor consumption. The SIA is counting on more than 20% growth in cell phone sales to total over one billion units this year, yet the big participants, like Texas Instruments, say that there are excess inventories in the field, especially in Asia. The SIA is still forecasting 2006 PC sales growth of 10%, even though Windows Vista will only be introduced for business use on November 30, and virtually every consultant is telling clients not to upgrade until the bugs are out.

I track the book-to-bill or orders-to-shipments ratio to understand where the industry is going, and how strong business really is. The good news is that shipments were still 37% higher this October versus October 2005. But that’s where the good news ends.

Shipments were 65% higher in August and fell to +54% in September. The book-to-bill ratio was below 1.0 for the industry from September 2004 to January 2006, which means orders were below shipments, so future shipments would be declining. The book-to-bill ratio finally went above 1.0 this February, and strengthened to 1.03 in March, 1.11 in April, 1.11 in May and 1.15 in June. But that was the peak. It fell to 1.06 in July and went below 1.0 again in August, to 0.99. September was worse, down to 0.98, and October was even worse than that, down to 0.95.

The reason the semiconductor stocks have been slipping is simple: Orders are below shipments, which means the industry is shrinking, not growing. Sure, the year-over-year numbers are still OK — but not for long. Wall Street knows that, having been through this cycle umpteen times before, and it is getting out of weak areas like NAND flash memory.

The Bottom Line

Housing is very weak. Consumers are pulling in their horns, even on consumer electronics, and excess inventories are hitting semiconductor orders. I’m looking for a modest holiday season and slow GDP growth, possibly negative, for the December and March quarters.

While I don’t think that’s good for the market in the coming two months, I still think there is room for the S&P 500 to make one last run at 1415 before the end of the holiday season.

As I expected, 1401 is turning out to be a minor resistance area. The way I see it, it would take a major market event (accelerating inflation, the Fed, a terrorist attack, natural disaster or a large geopolitical event) to derail this upturn right here. Yet, it looks like all the energy will be spent — all the money will be sucked in — just a few points higher at 1415. That will be especially true if it comes in a rush, looking something like the recent move up to 1401.

Then, the market will use that opportunity to snatch up profits from all the greedy investors who didn’t heed the warning signs. From there, the market will drop back to or through 1401, and we’ll be able to tell if the market reloads for a run to 1440 and another snatch-and-grab job on any remaining bulls, or if it will retrace all the way back to 1292.

A run to 1440 is the low probability scenario right now, as it looks like the long-term money has been spent, and this last blip up to 1415 will be done with speculative and momentum money only. It is no accident that Google (GOOG), the poster child for momentum money in this whole market move, cleared $500 today. That kind of buyer will turn tail and run at the first sign of weakness, and I would not be surprised to see a 10-point drop in the S&P in an hour after 1415 is hit. And, yes, when the time comes we will be re-shorting GOOG for a decline in U.S. advertising spending in 2007.

The Fear & Greed Index — the VIX — finally went into single digits on Monday and shows the near-total complacency in this market. It should be able to get down to 9.50 as the S&P gets up to 1415, and if they both reverse there (VIX up, S&P down), I’ll be even more sure a substantial correction is beginning.

Basically, what it comes down to is that the market cannot sustain this rally due to the negative economic data announcements that are coming. There may be a few head fakes over the next couple of months, but this isn’t the type of market to lay all your money on the table.

However, now is not the time to panic. Now is the time to prepare for the probable outcome. Despite the downturn, there will be companies that will not only survive, but prosper. These companies will be part of MegaShifts — unstoppable trends that have the capability to change our lives — and we’re already invested in the best ones to make you money no matter which direction the market takes.

I still think it is prudent for you to get off all margin and hold 50% of your portfolio in cash. So, if you’ve become overweight in a particular position, sell some of your stake. The big, liquid stocks, like Comcast (CMCSA) and Huaneng Power (HNP), are a great place to start, where we’re sitting on 35% and 10% gains respectively. By lightening your load, this will allow you to shelter a significant portion of your portfolio, as well as enable you to pounce on the enormous buying opportunity that will arise from lower levels for a good 2007 and 2008 market during the usually strong second half of the Presidential cycle.

Biotech MegaShift

Biogen Idec (BIIB) drew a question from Franklin: “I see BIIB is moving, as you thought it would. What is our timing for exit on the 2007 LEAPs? What is the last date we can exercise our sale?”

LEAPs “convert” to normal options about six months before expiration — you may remember that from when the BIIB January 2007 contract was assigned a new symbol. So, they expire on January 19, 2007. As for timing, even in a market correction, I think the big biotechs will be immune, as money comes out of Big Pharma due to the Democrat’s victory, and out of all cyclical industries. That money has to go somewhere, and most of the big institutions can’t hold cash, so Big Biotech is an obvious parking place. I still think it is safer to roll the 2007 contract into the 2008 contract, but if you want to hold on to what you have, I expect you can hold them right to the last week. I will remember to update them in the January 11 issue, and anytime I comment on Biogen. For others, sell the January 2007 $45 LEAP (IDKAI) and roll the money into the January 2008 $45 contract (YZUAI) under $12 for my $23 target, or higher.

Dendreon (DNDN) had the bear case rehashed on Motley Fool, which sparked a flurry of letters. Russell asked: “There seems to be a level-headed comment by Brian Lawler of Motley Fool on November 10 that another Phase III trial might be required before approval. If so, a financing would be needed because they will run out of money, with considerable dilution. What do you think are the chances of that? Are we talking about equal likelihood of 100% gain or 50% loss, or a 3:1 likelihood in our favor?”

I think the odds are 9:1 in our favor, but I will be the first to say that a 10% chance of the FDA requiring them to do another clinical trial makes this a high-risk investment. As Lawler said, by this time next year the stock will be a lot higher or a lot lower. He pointed out that only one of their Phase III trials showed a survival advantage, but he failed to mention that the second trial was stopped early with the FDA’s approval, as the two trials taken together provide enough data to make a decision on efficacy.

Steve wrote: “DNDN actions make me wonder. If they had enough cash to make it to approval or close, why would they sell stock at a 15% discount to market? I see it as kind of a positive that they could get the money, but what do you think of their confidence level in themselves?”

The key to your question is in the words “or close.” The FDA could come back to them in six months and ask them to waive the six-month deadline for further study. That has happened in other cases, and the company really has no choice but to waive it. I’ll bet what happened in this case is an investor came to Dendreon and offered money for DNDN shares, because the investor did their homework and believes Provenge will be approved. The private equity guys do a lot of due diligence before they offer money. Dendreon then called their investment bankers to place additional shares, which is an easy job if there is a lead investor. DNDN gets almost $43 million for 13.8% dilution, and the 15% price discount is just standard terms.

Ron asked me to comment on a long post from an Investor’s Hub message board, the essence of which (again) was that the survival data from one successful study and one supportive study is not enough to get approval. The post also included some other points related to the length of the Biologics Licensing Application (BLA) filing, Dendreon’s reduction in planned manufacturing capacity, and the departure of two Chief Financial Officers as further evidence that Provenge is unlikely to be approved. Dealing with them in that order, Dendreon has been very careful with this BLA filing to have every step reviewed by consultants, many of whom used to work for the FDA. Of course, the company began the process by asking the FDA if this data warranted a filing, or if they needed to complete another Phase III before filing. The FDA told them to go ahead. The reduction in manufacturing capacity was part of the cash-saving initiative that included stopping clinical work on other cancers where the Provenge process can be used, and I worry when technical people leave, not CFOs.

In short, Dendreon has had the BLA “reviewed” by ex-FDA reviewers every step of the way, and they are paid to find holes in the filing. That’s the biggest reason I think the odds of approval are 9:1. DNDN remains a Top Buy up to $7, and the additional shares from the latest financing do not change my target price of $14 after Provenge is approved in mid-2007.

Content on Demand MegaShift

Subscriber Li commented: “I do not think (as an engineer) that TKO, UTSI and ZHNE have any technology edge over its competitors. What technologies do you think they have that are world-leading?”

Good question, and it gives me a chance to make a point. Telkonet (TKO) clearly has a substantial technology lead in in-building Broadband over Power Lines, with a broad patent portfolio and an easy-to-install product that works right out of the box. Ambient, their main competitor, has only one installation, that I know of, and it is a much harder installation. But beyond that, TKO has a broad network of system resellers plus the contract with EDS to carry them to marketplace dominance.

UTStarcom (UTSI – part of the China MegaShift) has robust technology in Internet Protocol Television, but I would not say that it is world-leading so much as world-class. They can compete with anyone. What they do have is a wealth of real experience from their Japanese and Chinese installations, and extremely low-cost design and marketing capabilities from the handset side of their business.

Zhone (ZHNE) also has world-class technology in the DSL area, but so do many others. But what sets them apart is that they have great customer relationships and marketing — good-enough technology plus great marketing will usually trounce world-leading technology and lousy marketing. There is no one out there with better technology than Zhone (also true for UTSI and TKO), so it comes down to other factors that will decide who wins. And while TKO and UTSI would still be on my buy list even if they changed CEOs, Zhone has a big plus in my eyes because Mory Ejabat, who built Ascend Communications from a couple of hundred million in sales to a buyout by AT&T for $24 billion, is running the company.

New Energy Technology MegaShift

Subscriber Dean asked: “Between Gasco and Infinity Energy, which do you see as a better investment? They are similar in many ways, and both have done poorly lately, at least on the market.”

Yes, both have done poorly as oil and natural gas prices fell, but with oil back up to $60 a barrel and natural gas up sharply from its lows to $8, I expect both to climb sharply through the winter. But this is an easy call for me, because Infinity Energy (IFNY) is ridiculously depressed due to the constant selling by their senior lender, which I covered in last week’s Radar Report. When the company closes the sale of its oil services operation and notifies the lender that they will be paid off from the proceeds, IFNY will take a very large jump. I like Gasco Energy (GSX) for its natural gas position in the Rocky Mountain oil shale area, but I love IFNY at this price. So, to answer your question, if I had to choose between IFNY and GSX, I’d pick IFNY. IFNY is a Top Buy up to $5 for a $9 target, and GSX is also a Top Buy up to $4.50 for a $9 target.

New World Economy MegaShift

Omniture (OMTR) was the subject of an email from Dave: “I recently purchased Omniture at $10.50. I am concerned the stock is now at about $9.50. I set a stop loss at 10% off the high, should I allow more flexibility with this stock to compensate for market adjustments or follow through with the sell order?”

That was a really tight stop loss, but if you are the kind of trader that is willing to be stopped out and then reverse direction and buy back in if the stock starts to move up, I can’t argue with it. I do not use percentage stops; I prefer to look for energy levels where money “should” come into the stock, and if it does not, then I might get out. But I will quickly get back in even at a higher price if I’ve misjudged, and the energy flows back in at a slightly lower level.

If you set a stop 10% off of $10.50, that was $9.45. If it was 10% off the high of $10.75, that was $9.68. Of course, two days after the high, our friendly market makers knocked it down to $9.55 intraday, so either you were just barely stopped out or you just barely skinned through. Either way, with the stock immediately rallying for five days to yesterday’s 52-week high at $12.45, I hope you are on board (again). OMTR remains a buy on dips under $10 for my $20 target, although I am taking it off the Top Buy list because it is trading well over the buy limit.

WiMAX MegaShift

An email from Li asked: “Regarding WiMAX, have you done the analysis of cost between the WiMAX roll out and gradually upgrading from 3G to 4G? WiMAX only has two years edge over 4G in terms of technology availability, so what makes you think a carrier will spend a fortune to develop WiMAX, instead of upgrading its network to 4G?”

Well, a couple of things. I wouldn’t use “only” and “a two-year edge” in the same phrase — that is not a trivial advantage. I also expect WiMAX equipment, built to a truly open standard, to be cheaper than 4G, which is an open standard with substantial royalty payments due to Qualcomm. Due to the lack of licensed spectrum, I expect both systems to be deployed all over the world. 4G cellular equipment will come from the same folks who build 3G equipment. WiMAX is an all-new, disruptive technology that gives three small companies, Airspan (AIRN), Alvarion (ALVR) and Terabeam (TRBM), an opportunity to become three big companies. I may recommend a 4G equipment supplier in the future, as those systems get to market, but the opportunity will never be as big as the WiMAX opportunity that’s directly in front of us.

I know the slow start to the WiMAX rollout has tried our patience so far, but this week the In-Stat market research firm published a report headlined: “WiMAX Poised For Rapid Growth Despite Major Challenges.” They said that WiMAX is entering a rapid growth phase, because service providers are now able to buy WiMAX Forum-certified equipment. There will be 222,000 subscribers worldwide at the end of 2006, and that is forecasted to grow to 19.7 million by the end of 2010. They think much of WiMAX’s early success will come from underdeveloped regions, which is a special strength for Alvarion. Alvarion had the largest share of WiMAX equipment revenue during the first half of 2006.

The In-Stat market research firm thought that Sprint would be the only U.S. carrier to deploy WiMAX in the near term, paralleling my answer to Li’s question, above.

Airspan (AIRN) reported their September quarter, which I covered in last week’s Radar Report, but there were a couple things discussed on the conference call that I want to talk about today. On the call, AIRN said that excluding their legacy proximity product, year-to-date revenues increased 127% to $72.9 million, thanks mostly to the addition of over 100 paying WiMAX customers.

The troublesome Yozan contract, which caused them to miss their targets earlier this year, seems to have been resolved. Airspan successfully completed a network optimization program that demonstrated, over a long period, network availability for both WiFi and WiMAX in excess of 99%. As a result of that, Yozan signed a services agreement for AIRN to provide ongoing network design services. In addition, Yozan agreed to take delivery of additional equipment and services, some this quarter and most in the first half of 2007. This will complete the contract, which has been reduced from $42 million to $28 million. I think this whole issue is behind AIRN, and they reduced operating expenses by 13% in the quarter to compensate for the lower than expected revenues. There will be further reductions this quarter, in order to get closer to their quarterly goal around $13 million.

The Yozan project operates in the 4.9 gigahertz spectrum, and there are over 300 license holders in that spectrum in the U.S. Airspan has technical know-how that should serve them well in this market. The company is also targeting government and military installations in the 4.9 gigahertz and 5.8 gigahertz ranges, and delivered equipment to various government agencies through a government reseller in the quarter. They have a multi-million dollar, multi-phase project with a major armed forces group through a development partnership with a major supplier of battlefield communications systems. This project includes approximately $400,000 of service revenue in the short term and $3 million of equipment revenue over the next 12 months.

AIRN raised the lower end of their annual revenue guidance range from $120 million to $125 million, keeping $130 million at the high end. That equates to fourth-quarter sales of $28 million to $33 million. They said that if a Request for Quote comes from a customer who wants to do something in the next six to nine months, it usually comes down to Airspan and Alvarion. If the customer is looking to deploy maybe two years out, then Motorola will bid, and both Alcatel and Siemens might bid.

I am trimming my buy limit on AIRN by $1 to $5, which is still well above current levels, but not changing my $10 target. I expect the stock to hit the target before the end of 2007 as the WiMAX MegaShifts into high gear.

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.

Here at New World Investor we’ve been following the S&P 500 very closely. I believe that by tracking the S&P using my new tools, we can see where the market as a whole is headed next. Since the S&P top on October 26, there have been a lot of streaky moves in both directions, but no real progress. In spite of today’s weakness, it is still possible that the S&P 500 can break 1390 to the upside and then race up to 1440, but it has worked itself into a position where it is very unlikely to hold 1440 or stage the usual yearend rally from current levels. The index really needs at least a rest and, more likely, a significant downside break to be able to stage a run at a new all-time high. The market is like a daredevil lining up to jump 50 cars on a motorcycle — it needs to back up and get some distance so that it will have enough momentum to breach the gap. Once we see what the back up and takeoff look like, we’ll know if it is going to clear the cars for a strong 2007, or wind up in the hospital.

We’ve been discussing the market’s next move for a couple of weeks now. And it’s true that there are a couple of different scenarios that could play out with the S&P, but I think a successful “Evil Knievel” scenario is the most likely. Either way, we are right on the cusp of finding out which path this market will follow.

If I’m wrong and the market decides to go sideways for three months, our stocks should still do relatively well. The market drop from May to July hit small stocks and technology stocks especially hard, so prices are very attractive, and most of our companies have good news coming. Hedge funds are badly underperforming this year to date, and in the closing couple of months, they are likely to chase any stock with good news in an effort to beat their performance benchmarks. That would make for a volatile but rewarding time in our MegaShifts. After that, if the market breaks out we will add more investments in anticipation of the two-year run. If it breaks down, we will get out of many positions.

However, if the market follows my most likely scenario and breaks sharply soon — which includes the S&P 500 getting as high as 1440 before it cracks — then we will be scooping up stocks around the end of the year or in January for a subsequent rally in 2007. The momentum following a break under 1360 would probably carry the S&P 500 back below 1300.

Subscriber Mike L. wrote: “You have set some lofty targets for these stocks, targets that you had initially felt would be reached by the end of 2006, and now I notice you are talking about 2007 in your most recent reports. When are these stocks going to live up to their billing…there are only 60 days until 2007. What are we to expect?”

I have reduced some target prices where companies or industries are developing slower than expected, but in general you are right — I still think these stocks will hit their targets, but in most cases not until next year. The targets always assumed a decent market environment, and in spite of the recent rally in large capitalization stocks, we are not in a decent market environment for smaller companies and tech stocks yet. Two out of my three scenarios would say that environment will happen in the first half of 2007, and in general, I think it is realistic to assume these targets will be hit by mid-year or sooner.

Avian Flu MegaShift

BioCryst (BCRX) reported yesterday morning, losing $15.6 million or 53 cents a share. They had $61.6 million in cash at the end of the quarter. On the conference call, management said that there will be three presentations on Fodosine on December 10 at the very important American Society of Hematology (ASH) annual meeting. The drug treats a variety of blood cancers, including cutaneous T-cell lymphoma. Merck recently got approval for Zolinza to treat this disease, and they are pricing the drug at $90,000 a year. It has an overall response rate of 30% with nasty side effects, including thrombocytopenia in 20% of the patients, diarrhea in 49%, fatigue in 46%, nausea in 43% and anorexia in 26%. Fodosine has a much better side-effect profile and is about to enter its pivotal trial under a Special Protocol Assessment, which essentially guarantees FDA approval if they hit their numbers.

On peramivir for flu, BCRX is planning to finish both Phase II trials this flu season — intravenous in hospitalized patients, and intramuscular in outpatients — but they are putting backup sites in place in South America just in case they need to pick up more patients quickly to finish the trials.

Mike B. emailed: “I bought a great deal of BCRX at $28. Now the goal is a target of $20. Should a person sink a lot more money now so when it hits $20 he may “break even.” Is this irrational thinking and am I way off base?”

Mike, the target is $30, not $20. The buy limit is $19, and the stock is currently trading around $11. This would be an excellent time to double up on BCRX and get your average cost down. Everything is going well here, and BCRX remains a Top Buy up to $19 for my $30 target.

Biotech MegaShift

Dendreon (DNDN) reported yesterday morning, and released an interim analysis of the ongoing P-11 clinical trial for Provenge in patients with non-metastatic, androgen-dependent (or hormone sensitive) prostate cancer. This study is limited to patients with recurrent prostate cancer who have not yet developed metastatic cancer. P-11 measures the ability of Provenge to extend the time it takes for PSA levels to double. It is not a registration study and will not be submitted to the FDA as part of the current Biologics Licensing Application (BLA), because the FDA wisely does not allow PSA (prostate-specific antigen — a common measure of disease advancement) endpoints to be used for approval either for a primary BLA, NDA (New Drug Application — the chemical drug equivalent of a BLA) or for label expansion.

But the study did show a projected 35% increase in the time it takes PSA to double, and again showed that Provenge has an excellent safety profile. DNDN will continue to follow the patients until metastases (cancerous tumors spreading throughout the body) in order to get even better estimates of how much Provenge helped. There was a persistent immune response 21 months after administering Provenge. The immune response was strengthened by a booster shot of Provenge, so everything lined up nicely.

The company said that the last parts of the BLA will be filed this quarter, on schedule. During the earnings announcement, managements also said that they lost $20.7 million in the quarter, and have $92.6 million left. They also said that they are on track to use $100 million for the year, implying an acceleration to $30.8 million used in the current quarter. Obviously, they have everything bet on approval of Provenge in June, and they do have enough cash to get the ball to the goal line.

DNDN could reduce their business risk by signing a partnership deal before the FDA decision, but they will get much better terms after the decision. So, unless a big pharma shows up with an offer that assumes approval, they will have to make a difficult decision. As far as I am concerned, they’ve played this hand alone so long that they may as well play it out and bank on FDA approval.

Mike L. also asked: “With the increased trading volume on Denderon of late, am I to assume Wall Street is becoming a little more bullish on Provenge?”

Nope. They still don’t get it. The stock is moving up on good data releases and progress in filing the BLA. Here are all the actions on DNDN for the last two years by Wall Street, including the most recent neutral rating from Banc of America Securities.

Date	Firm	Action	From	To
11/2/2006	Banc of America Sec	Initiated		Neutral
7/5/2006	JMP Securities	Upgrade	Mkt Perform	Strong Buy
10/18/2005	Banc of America Sec	Initiated		Neutral
7/22/2005	UBS	Downgrade	Neutral	Reduce
5/16/2005	JMP Securities	Upgrade	Mkt Perform	Mkt Outperform
3/8/2005	UBS	Upgrade	Reduce	Neutral
1/12/2005	Piper Jaffray	Downgrade	Outperform	Market Perform
1/12/2005	UBS	Downgrade	Neutral	Reduce
1/12/2005	Delafield Hambrecht	Downgrade	Buy	Hold
1/12/2005	Lazard Freres	Downgrade	Buy	Hold
1/11/2005	Needham & Co	Downgrade	Strong Buy	Buy
1/11/2005	MDB Capital Group	Downgrade	Buy	Neutral

Wall Street may not even recommend the stock until after they have FDA approval. Although the stock has been marching up since the June lows, DNDN remains a strong buy up to $7 for my $14 target.

eResearch (ERES) reported another soft quarter last night, with weak December-quarter guidance, which knocked the stock down $1.75 today, yet it was accompanied by an unusual and very positive conference call. First, the numbers: They did only $22.2 million in sales with seven cents a share pro forma earnings, compared to the consensus expectation for $23.5 million and five cents. Then they guided for $18.0 million to $20.5 million in sales in the current quarter, with four cents to six cents proforma earnings per share. That was well below the consensus of $25.9 million and eight cents.

But the real reason for the lower guidance is that the new management team has done a contract-by-contract evaluation of when each clinical trial will start and how rapidly it will grow. They have concluded that the typical trial no longer starts six months after contract signing — it now takes a year. This is due to both increased regulatory issues and to customers giving themselves more time to structure trials to meet the new guidelines.

Tina asked: “I’ve been reading message boards and I’m a little concerned about ERES. Is it true that Wellington liquidated their ENTIRE 3.7 million share? Should we be concerned?”

Wellington, a well-known value stock investor, did sell their eResearch position. However, at June 30 the stock still was heavily held by other top-quality value managers, including:

Holder	# Shares	% of Issue
Blum Capital Partners	9,043,090	18.30%
RS Investment Management	7,338,840	14.90%
Mazama Capital Management	4,157,718	8.40%
Royce & Associates	3,716,000	7.50%
Pequot Capital Management	1,764,350	3.60%
Barclays Global Investors	1,546,082	3.10%
Muhlenkamp & Co.	1,183,615	2.40%
Total:	28,749,695	58.00%

With such a heavy commitment by well-known value investors, I am not worried about Wellington’s sale. I think management is doing everything right to run the company better and regain Wall Street’s confidence by setting low expectations. The opportunity has not changed, so ERES remains a buy all the way up to $16 — it is that undervalued — for my $30 target.

ViroPharma (VPHM) drew an email from Mike: “After reading today’s letter about VPHM, you stated that the generic approval would now take until 2008 to 2009. Where did you get that info and why hasn’t the stock moved up as this was supposedly what we have been waiting for. The stock dropped after today’s conference call. Your previous letters have stated a reversal would pop this stock back up three to four points or so. What is the problem with the stock? When I look at all the other biotech’s in the sector that don’t make money or have the pipeline, their prices are much higher with no earnings whatsoever. Please advise, when will Wall Street put a fair value on this company?”

I know this is frustrating. The government has not announced that ViroPharma has won the generic battle, but their most recent revision of the new guidelines for generic approval does not include the previous references to Vancocin. ViroPharma really can’t say anything about that until the FDA formally says something, and Wall Street is not going to notice until ViroPharma says something. After that, the Street will put a fair value on the stock, which, as you point out, is much higher than its current level. That’s why VPHM is a strong buy while it is under $13 for my $28 target.

Content on Demand MegaShift

Telkonet (TKO) won the final round at the FCC, as I expected, when the agency classified Broadband over Power lines as an information service, ignoring ham radio operators complaints that it was a way to transmit that interfered with their spectrum. Thus, the FCC put BPL on the same footing as DSL or cable broadband. BPL Internet subscribers tripled in 2005 from a small base, and it will soon have the critical mass required to attract the attention of market researchers and Wall Street analysts.

John asked: “What is the downside risk with TKO?” In a fundamental sense, zero. But in a sharp market drop, development-stage stocks tend to take a hit as all the market makers pull their bids, and then they rebound as either the market recovers or their fundamentals push them up.

Anthony commented: “You have been saying for months that Telkonet is going to announce a major financing deal and/or investor. What is going on — none of what you said about TKO is happening!”

Well, Anthony, the two biggies were the EDS contract and the financing. The EDS contract happened. The financing will happen, but I think management would like to see the stock higher before they commit to anything. Even a strategic investor has to pay some attention to the current price of the stock. But I still think that announcement is coming. Continue to buy TKO under $5 for my $15 target.

New Energy Technology MegaShift

Gasco Energy (GSX) reported yesterday morning. They did $6.1 million, up 30% from last year as record quarterly production (up 94%) more than offset lower natural gas prices. They lost a penny a share, in part due to higher work-over costs on existing wells. Their drilling program is going very well, as they added another rig and are finding more gas than they expected in two of their Rocky Mountain lease areas.

Denise asked: “What’s up with GSX?” Pretty much everything is up but the stock price. Natural gas prices will be climbing from here even in a warm winter, and spiking during the inevitable cold spells. GSX will follow prices for now. GSX remains a Top Buy up to $4.50, with a $9 target — more than a triple from here.

Ocean Power Technologies (OPWT) may eventually benefit from a November 4 Associated Press story on tidal energy. It was a puff piece for a private company, Verdant Power, which plans to put a pilot project of two underwater turbines on the floor of the East River off Manhattan. The incoming and outgoing tide turns propellers that spin the turbine, generating electricity. This technology works, but there are very few places where water is constricted enough to provide the necessary pressure and speed to efficiently produce electricity. The East River is one, and both Makah Bay in Washington State and the Cook Inlet in Alaska are possibilities. A dozen sites have been studied in the last four years, but no one has applied for a development permit to go ahead with a commercial project. The ideal site has a flat bottom, is not in boating lanes and can somehow deal with the fish population. Hopefully, anyone researching tidal energy will get to wavepower and OPWT.

With the increased interest in tidal and wave energy sites, the Federal Energy Regulatory Commission is holding a public meeting in Washington D.C. on December 6 to discuss marine energy technologies, and we can watch it on the commission’s website. Buy OPWT under $1.50 for my $3 target, and remember that I prefer that you buy it in London (symbol OPT) up to 82 pence, if your broker will execute trades there.

New Materials MegaShift

Integral Technologies (ITKG) took a tumble late last week, and I sure hope you loaded up when it went under my buy limit. Steve and many others wrote: “What about ITKG? Big sell off.” All that happened was that a Wall Street firm suspended coverage, probably because either the analyst left or the firm is involved in an investment banking deal with ITKG.

Yesterday, their ElectriPlast technology won a CES Innovations 2007 Design and Engineering Award in the Enabling Technologies product category. The stock has been pushing higher ever since — up almost 13% today. ITKG is a buy on every dip under my $2.50 buy limit for the initial $4 target price — and much higher numbers later.

Security MegaShift

American Science & Engineering (ASEI) reported $29.6 million in sales and 69 cents a share proforma for the September quarter, beating the 63-cent estimate. They have a record backlog of $117 million, up $54 million from last year’s report, and they said that prospect activity is strong.

Forbes.com reported this morning that another newsletter recommended the stock. We’ve all had plenty of opportunity to buy it under the limit, which it moved above today. Buy ASEI on dips under $59 for my $93 target.

Video iPod

PortalPlayer (PLAY) agreed to an acquisition by Nvidia (NVDA) for a really low price, $13.50 a share. Nvidia, a company I know well, has the inside track to provide a processor for the “real” video iPod. PortalPlayer has some technology Nvidia desperately needs to win Apple’s business. So, why is PLAY management willing to sell for $13.50? I haven’t seen the detailed filings yet, but there is often a deal to employ the acquired management at high salaries with big options. I hope that is not the case here.

There are so many other companies that could use PLAY’s intellectual property and business, including Toshiba and Broadcom, that I think there could be another bid. Hold PLAY — I am suspending the target price — and let’s see if a bidding war gets underway.

As I expected, the economy is much weaker than the consensus predicted. Real GDP growth slowed to 1.6% in the September quarter, the slowest since the March 2003 quarter. It is going to slow further, as housing is coming apart at the seams. Investments in housing fell 17.4% in the quarter, the largest decline since the first quarter of 1991. Housing subtracted 1.1 percentage points from third-quarter GDP growth, squashing the impact of solid spending by consumers and businesses.

But there’s the rub. Consumers have not adapted their spending behavior to what is happening to their real estate wealth. An August Wells Fargo survey found that only 6% of homeowners thought their home’s value would decline in the next 12 months. Yet, it is more probable that 100% of their homes will drop in value. Consumers are always late to the train on these issues. For example, even after the Fed started raising interest rates, consumers kept opening new equity lines of credit for six months, and then suddenly the situation hit them and they stopped.

With the housing crunch continuing for another six to twelve months, consumer spending will soften. Business inventories are already too high, especially in the cell phone and personal computer area, and business capital spending budgets are just starting to come under pressure. When consumers slow their spending, imports fall to prevent excess retail inventory, businesses stop investing, exports fall as worldwide economies soften, and then, guess what we get — a recession.

While it is popular today to say that the Fed is engineering a soft landing and will start cutting rates in March, I think it is far more likely that we will get the usual hard landing — two consecutive quarters of negative GDP growth. Single family home rental expenses, which are a large fraction of the Consumer Price Index (CPI), rose slowly over the past five years because they were subsidized by increasing prices, which made landlords feel better. Now rental expense is going up as house prices fall, so the CPI is going to stay well above the Fed’s “comfort range.” Will they cut rates anyway, making a mockery of Chairman Bernanke’s 1% to 2% stated inflation goal range? Probably. But it will be a struggle, and unlikely to happen as early as March.

The stock market has been a big believer in the soft landing, and through Tuesday we had 78 straight days of the S&P 500 not dropping more than 1% in a single day. That was a very strong rally, with the last comparable run in 1995.

But yesterday’s break under 1377 probably marked a change in character for this market, and set the stage for a decline that will tell us a lot about what is coming next. That was the first break of a support level since the rally began, and it would be normal for the market to rally back to that level from below. If it can break through, the levels I mentioned in last week’s Radar Report — 1405, 1440 and maybe even 1553 — are likely, with record highs to be seen in 2007.

However, the most likely scenario is that the S&P 500 can’t break through 1377, and “kisses it goodbye” to go down and test support at 1325, 1295 or even 1220. I was surprised that the market couldn’t even muster a feint back to 1377 today. Yet, I would consider a clean, quick test back down to be very bullish, as that would reload the troops for the next big move up in the bull cycle that I think is unfolding for 2007 and 2008.

A more complicated up-and-down double or triple top before the decline gets underway would be much more serious, and suggest we are in for several months of poor returns. At this point, I don’t think that’s the likely path, but I am closely watching how things develop from here.

I still think you are safe in putting some money to work in the stocks that I named in the last issue, as they have very little downside risk even if a market correction has begun. Just to remind you, those stocks would be BioCryst (BCRX), Dendreon (DNDN), eResearch (ERES), Harmonic (HLIT), Zhone (ZHNE), Omniture (OMTR), Connacher Oil & Gas (T.CLL), Gasco Energy (GSX), Infinity Resources (IFNY), Rentech (RTK) and Alvarion (ALVR). I would also add last issue’s new recommendation, Affymetrix (AFFX), to the list when it dips further and goes under my $24 buy limit.

If you haven’t put any new money to work and are comfortable with your cash position, wait to see how a market decline plays out. But be ready to put some money back to work if you see the S&P 500 post a strong close back over 1377, as that will signal this little downturn was a bear trap, and the market is headed substantially higher in a hurry.

Avian Flu MegaShift

According to researchers, bird flu killed a dog in Thailand a couple of years ago, which reminded everyone that cats and dogs can get the H5N1 virus and then infect their human owners. In China, scientists identified a strain of bird flu that eluded avian vaccines and is primarily responsible for the third wave of animal infections in China and other Asian countries during the last year. This strain, called “Fujian-like” virus, replaced the other H5N1 flu strains that were circulating in Chinese poultry.

I am not surprised. China very actively vaccinates poultry, including using illegal vaccines, and the only long-term effect is to cause the virus to mutate to a more deadly form that is immune to the vaccines. Researchers have their blinders on, and say things like: “It’s the same vaccine, and it’s made in China, so we need to find out if the vaccination policy is not being followed or some vaccine is not up to snuff. If the vaccines are not protecting against new strains of the virus, then those strains have to be included.”

BZZZZT! WRONG! That is a recipe for breeding a super strain of H5N1 that will be resistant to all vaccines. But they aren’t going to stop any time soon, so this crisis is simply going to get worse. Buy BioCryst (BCRX) under $19 for my $30 target,

Crucell (CRXL) up to $28 for a $50 target, and hold both the Gilead January 2007 $60 LEAPs (GDQAL) for my $20 target, and the 2008 $50 LEAPs (YGDAJ) for my $30 target.

Biotech MegaShift

Biogen Idec (BIIB) jumped $3.69 on Tuesday after they reported a great quarter and, just as I’ve been expecting, good Tysabri sales of $8 million (split $5 million for BIIB and $3 million for their partner, Elan). Avonex, Biogen’s current leading multiple sclerosis drug, had very strong sales of $445 million, at the high end of the $410 million to $450 million that analysts expected — yet, Tysabri will eventually pass it. Tysabri will be a $1 billion drug by 2010, or earlier.

The company reported $703.5 million in sales, up 18% from last year, and 57 cents a share proforma, compared to the consensus estimates for $681.3 million and 49 cents. They raised their guidance for 2006 to something over $2.20 a share, compared to their prior guidance for $1.95 to $2.10 per share.

Our LEAP options took a big jump with the stock, and I think this is just the beginning. BIIB is becoming a must-own biotech, like Genentech, and the biotech group looks like it will lead the market higher when the next up leg begins. The January 2007 $45 LEAP call (IDKAI) is becoming more of a gamble due to the limited time left for it to work out, although I still think it will. But, for safety’s sake, sell IDK AI and roll the money into the January 2008 $45 contract (YZUAI) under $12 for my $23 target, or higher. I am only recommending this because a broad market decline at this point could delay BIIB’s ascent to $66 past January, and I want you to be able to relax and give Wall Street plenty of time to run this stock to the level it deserves.

Dendreon (DNDN) has been flirting with $5 a share for a couple of weeks now, following their presentation at the Prostate Cancer Foundation’s Thirteenth Annual Scientific Retreat. They presented some positive additional data on the current Phase III clinical trial for Provenge, which will not be part of their filing for approval. That filing will be completed by the end of the year, with Fast Track review in the first half of 2007. I still think they will get approval because they extended survival in advanced prostate cancer cases by 11 months. Genentech’s Avastin extended survival by five and a half months, and it is a blockbuster cancer drug.

When approval comes, DNDN will spike to my $14 target, and we may hold it for higher levels, which I expect to come later. Provenge will be adopted very rapidly, as there is no other treatment available, yet Wall Street continues to act as if personalized cancer vaccines are unlikely to be approved, and if approved, unlikely to be used by doctors. Wrong and wrong. DNDN remains on the Top Buy list up to $7 and is a steal at current prices for my $14 target.

ViroPharma (VPHM) reported a great quarter this morning. The numbers were super: Record Vancocin sales of $55.1 million and 33 cents a share versus the Street consensus of 26 cents. There was about $8 million in wholesaler buying ahead of a price increase, which will make for a tougher comparison next quarter. But Vancocin prescriptions grew 19.5% from last year’s third quarter, and remain strong.

Their clinical pipeline news also was strong. VPHM started their Phase III trial of maribavir to prevent cytomegalovirus disease in stem cell transplant patients, and will present Phase II results at the upcoming American Society of Hematology (ASH) meeting. They also are about to start a Phase III study in solid organ transplants.

VPHM announced positive Phase 1b results for HCV-796 in combination with pegylated interferon as a treatment for hepatitis C, and will start a Phase II trial shortly. Hepatitis C is a rapidly growing problem, and the virus mutates quickly. It looks like HCV-796 targets a portion of the virus’ protein coat that does not change, so it may be a very effective drug for this troublesome disease.

They still hope to close a major acquisition this year, which would give them a drug to pick up the slack when Vancocin eventually does get generic competition. Perhaps the best news of all, which I found out separately from the conference call, is that their efforts to stop early approval of generic Vancocin may have already paid off. There are new rules from the Office of Generic Drugs that say the critical path for faster generic approval no longer includes generic Vancocin. That should put off competition to late 2008 or 2009. This news has not been reflected in the stock price yet, and I think VPHM is one of the cheapest stocks in the whole healthcare area at 15X earnings for 22% growth. Buy under $13, where it was yesterday, for my $28 target.

China MegaShift

UTStarcom (UTSI) dropped $1.12 today after a Hong Kong–based Merrill Lynch analyst cut the stock from neutral to sell because it has doubled from its June low. He didn’t mention that it is still 50% below its 2005 high. Sheesh. Ignore him, and buy UTSI if it gets hit under $9 for my $15 target.

Content on Demand MegaShift

Silicon Image (SIMG) reported just after the close last Thursday, and I commented briefly on the numbers in last week’s Radar Report. They did 24cents a share on $78.3 million in sales, beating the consensus, but guided for a decline of 3% to 5% due to normal seasonality, or $74.4 million to $76 million in the December quarter. Wall Street was looking for $79 million in the fourth quarter, so the stock was hit for $2.42 on Friday. Then on Tuesday, SIMG revealed an informal investigation into their option granting practices due to an SEC inquiry, so they are caught in that malaise as well.

As I said last week, I am not worried about the December quarter, and I continue to think that they will show strong revenue growth in 2007 as many new HDMI-connected products, where SIMG has the design win, get to market. But I am worried that a consumer slowdown scares Wall Street, and keeps the stock cheap. So, I moved SIMG from a buy under $10 to a hold last week, and the lowest it has gotten so far was $10.88 yesterday.

If we get a chance to pick it up in the next few weeks between $9 and $10 due to broad market weakness, I will move it back to a buy. But given the options investigation and two weak quarters (March being seasonally weak), there’s no reason to rush to buy it today. Just to be clear, I would not sell the stock, either. SIMG is a strong hold, based on the fundamentals of its business, for my $18 target in 2007.

Telkonet (TKO) has a subsidiary, MST/NuVisions, that has quietly become the largest Wi-Fi supplier in Manhattan. For the New York City Marathon, the largest such race in the world that will be run this Saturday, they are providing a dedicated Wi-Fi network to link spectators, staff, organizers, security, press and medical personnel. It should give them a bit of exposure, while demonstrating how well their wireless high-speed backbone copes with surges of traffic. This is a part of TKO that I don’t talk about much, but they are expanding the number of Wi-Fi hotspots monthly, and the day may come when the city government realizes how much money they could save by using the MST/NuVisions system. The trade, of course, is free access for the city and for special events like the marathon, in return for a franchise for all of Manhattan. TKO is a Top Buy up to $5 for my $15 target.

New World Economy MegaShift

Omniture (OMTR) will make a major product announcement on December 11 in San Francisco. The product is “plug and play” technology used to integrate online marketing analysis into a company’s existing systems. This is going to be HUGE — some call it Marketing 2.0, piggybacking on the Web 2.0 terminology.

We all had plenty of opportunities to buy this stock under $8, and it has moved up nicely this week. I am raising the buy limit on OMTR to $10 in case you missed it, while keeping my target at $20. If you are hesitant to buy in the face of a potential sharp market decline, get half a position here and try to fill out the rest closer to my original $8 limit.

New Energy Technology MegaShift

Oil prices seem locked in a $58 to $59 range for now, with the drop to $57.05 on Tuesday quickly rejected by traders. Slightly warmer than usual weather in the U.S. and high inventories are being offset by concerns over OPEC production cuts. Wall Street is very skeptical about the stated 1.2 million barrels a day target for the cuts, and is betting reality will be closer to 200,000 or 300,000 barrels a day. But Oil Movements, an industry consultant that actually measures shipments, says that there will be a 2% decline through November 18, or 400,000 barrels a day. So, the cuts are starting to bite, and I think we are one cold snap away from using up a significant amount of inventory. With all the energy sector stocks depressed, now is the time to step up to the plate.

Holly Corp. (HOC) reported yesterday morning, easily beating the consensus. They did $1.17 billion in sales and $1.37 a share, excluding nonrecurring items. On the same basis, the Street was looking for $0.99 billion and $1.28. The stock bounced up $1.58 yesterday and another 15 cents today.

On the conference call, management said that their Navajo refinery expansion is now producing at full volume, and they will have a record year in 2006. They had $79 million remaining on the $200 million share buyback program that they announced last December, and the Board just added another $100 million to that. So far, they’ve bought back 1.3 million shares at an average cost of $45.64. It looks like they will do over $4 a share this year, so at 12X earnings, why shouldn’t they buy back their stock? HOC is a buy on any dips under $46 for my $60 target.

Plug Power (PLUG) received $8.6 million in three awards for hydrogen fuel cell research, development and demonstration projects from the Department of Energy. The first award is for an ethanol-based fuel cell system connected to the utility grid. The second is to develop a high temperature combined heat and power fuel cell system for apartments. The third is a new design for a one kilowatt proteon exchange membrane fuel cell stack. The stock went down 10 cents on the news — hello? Is anyone listening? All of these programs are expansions into markets adjacent to PLUG’s backup systems business. This was good news, and PLUG remains a buy up to $5 for my $10 target.

Security MegaShift

@Road (ARDI) held their conference call after the close last Thursday. As I covered in last week’s Radar Report, they came in with $25.2 million in sales and a profit of three cents a share, beating expectations. On the conference call, management said that they got almost 17,000 more subscribers in the quarter, well above expectations, and are on track for their 181,000 subscriber goal by the end of the year. They guided for $26 million to $27 million revenues in the December quarter, and three to five cents a share, at or slightly above consensus. Then they surprised me by giving 2007 guidance for 20% to 25% growth, which they added (a) could be low and (b) they already have 85% of that committed. The number of subscribers will grow 30% to 40%, and profit margins will improve. They are going to add some indirect sales channels in 2007, and any business from that direction will be additive to the current guidance.

One of the venture capitalists filed to sell one million shares, and I think those cleared last Friday and Monday, even as the stock was rising. It closed today one cent below its 52-week high. ARDI is well above my buy limit, so I am moving it to a Hold for my $8 target this year and $10 to $12 in 2007.

Video iPod MegaShift

Portal Player (PLAY) reported as last week’s issue was about to be posted on the web. The September numbers were OK, as I reported last week, but their December-quarter guidance for $31 million to $38 million and five cents to 14 cents was weak compared to the consensus expectations for $38.9 million in revenues and 12 cents a share. After an initial 40 cents a share hit last Friday, due in part to a downgrade from one Wall Street firm, the stock has been quite strong this week. I think one reason for the strength is the increasing buzz over a coming Apple iPhone — a cell phone and music player. PLAY has a chip for that combination to sell to Apple or any of their competitors.

On the conference call held later last Thursday, PLAY said that they have their new generation of chips ready to show at the Consumer Electronics Show in January. They added that they continue to ship products to Apple for the video iPod — that was interesting — and won a SanDisk contract for that company’s c200 MP-3 player. In 2007, the company is looking for a very innovative year for the personal media player market. They expect to see new media players with a variety of capabilities, enhanced video (including high definition) and other new features.

PLAY is also looking forward to the Windows Vista introduction, which will bring the little Preface screen on the outside of a laptop to let users access things like calendars without starting the computer. PLAY and Microsoft had been thinking of this as a simple in-lid display, but as they’ve worked through the design opportunities with customers, they’ve realized that the potential applications are much broader than that. PC manufacturers want to use the technology to differentiate their products, so they are designing new ways to implement Preface. For example, the secondary display can function as a media remote control, or a personal media player, or a Bluetooth-enabled voice handset, or a combination of these.

These new products will have a lower profit margin at first, which is the main reason the December quarter will be soft. But they expect margins to recover quickly in 2007, so I am comfortable keeping PLAY as a buy under $12 for my $20 target.

WiMAX MegaShift

Alvarion (ALVR) reported this morning, booking a proforma profit of two cents a share on $54.0 million in sales, up 7% from the June quarter. The consensus was looking for breakeven on $52 million in sales, and the stock barely budged today on 1.5 million shares, more than double the normal volume. They guided in-line for $52 million to $56 million in sales and one to four cents a share proforma profit for the December quarter.

WiMAX accounted for a third of their sales in the September period, and represented initial orders from many customers rather than a few big rollouts. The big rollouts are coming in 2007. Alvarion has 100 WiMAX deployments and 120 trials underway, and said bookings were “very strong” in the quarter. They will see good sequential growth in the current quarter. ALVR remains a Top Buy up to $9 for my $18 target.