Flash Alert – 3.30.09 – Arena’s Lorcaserin Works; Stock Down Anyway
Arena Pharmaceuticals (ARNA) announced their Phase III lorcaserin obesity drugs this morning, and the news was excellent, although not perfect. Importantly, the drug was well-tolerated and showed little impact on heart valve function. Management said that if the second Phase III trial results due in September are similar, lorcaserin will easily meet the FDA safety standard.
Equally important, the drug worked, achieving high statistical significance over the placebo on every primary endpoint. The three endpoints in order of importance were the proportion of patients achieving 5% or greater weight loss after 12 months, the difference in mean weight loss compared to placebo after 12 months, and the proportion of patients achieving 10% or greater weight loss after 12 months.
Endpoint #1: 47.5% of lorcaserin patients lost greater than or equal to 5% of their body weight from baseline compared to 20.3% in the placebo group. This result satisfies the efficacy benchmark in
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Dear New World Investor:
Welcome to the new bull market? Monday’s rally put the S&P 500 23.5% above the bear market low set March 6 at 666. (Aside from being the mark of Satan, 666 happened to be just one point above the 61.8% retracement level of the bull market that began in August 1982.) A 20% move used to be the gold standard for whether we were in a new bull or bear market. Monday also marked the biggest 10 day rally since 1938, and gave March a chance at ending up 5% or better on the S&P 500. We haven’t had a month that strong since December 2003 – 62 months. April 2008 was close, up 4.75% .
The consolidation period in January and February of this year went on for weeks, testing and retesting the 820 level on the S&P 10 times until it finally broke down in February. I expect to see several days or even a few weeks of testing between 800 and 850, with most of the action over 820. There’s plenty of energy to do that, and a period of consolidation in the 820 to 850 area will be the perfect setup for a breakout over 850. It then could take several weeks or a few months to get all the way up to 1060. There was a similar pattern in 1937-1938 when
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Heads Up On the Dollar On Wednesday
The U.N. Commission of Experts on International Financial Reform, a specialist advisory committee that includes representatives from the U.S. government, will advise tomorrow that the world should dump the U.S. Dollar as the world’s reserve currency. They will suggest either an international currency unit based on several countries’ currencies, including the dollar (their preferred alternative), or a currency based on the Special Drawing Rights issued by the International Monetary Fund.
Their stated reason will be that having the dollar as THE reserve currency unfairly burdens American policymakers at a time they are trying to deal with huge financial problems. Unfortunately, both Fed Chairman Bernanke and Treasury Secretary Geithner have made comments from time to time that gives the U.N. Commission
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Rally Still On Track, Big Test At 850 Coming Up
Today’s explosive upswing – 54.5 points or 7.1% on the S&P 500, and about 500 points on the Dow – comes as no surprise. The 850 level on the S&P is one of the strongest energy levels under 1062, and is a very strong attractor/repeller level. That means stocks will be attracted up to it as a resistance level, or if the S&P can climb above it, back down to it as a support level for retests. However, it also means it acts as a repeller as stocks get close, and it takes a lot of stored-up energy from negative or neutral investors caught on the wrong side of the move to get through it.
Another upturn in the next day or two just half as large as today’s move will put the S&P almost exactly at 850, so this is a very crucial test coming up. There are four possibilities:
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Dear New World Investor:
What an amazing week! And I am not talking just about the stock market, where I think we have picked our way through the minefield just about as well as anyone could. I came right to brink of recommending put protection if positive energy did not release into the S&P 500 at what effectively was its last opportunity to avoid a drop to 520. But I did not have to pull that trigger, as cash came off the sidelines at the critical moment and the “look, look, I’m bearish!” crowd covered their shorts in a panic.
Some commentators have claimed the sparks to start the rally were the pending reinstatement of the uptick rule by the SEC and the Financial Accounting Standards Board’s commitment to rewrite its Mark To Market rule. I ran short-only funds and a shorts-only newsletter for years, and I can promise you that the uptick rule made zero difference then, and even less difference now that we live in a world of one cent bid/ask spreads instead of eighths. If it made any sense to “stop shortsellers from ganging up on a stock and driving it down” by having a rule that you can only sell short on an uptick (a price equal to or higher than the last trade), then why not have a downtick rule to “stop manipulators and daytraders from piling on to a moving stock and driving it up?” If they could only buy stock on a downtick (a price equal to or lower than the last trade), wouldn’t that make our stock market much more efficient?
No. And imposing an uptick rule won’t do any good,
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Two Ways To Speculate On Arena Pharmaceuticals Phase III Results
I’m not an advocate of short-term trading for serious investors, but sometimes a situation comes along that is just irresistible. At the end of this month Arena Pharmaceuticals (ARNA) will reveal top-line data from the first of two pivotal Phase III trials of its weight-loss drug, lorcaserin. This is essentially phen-fen reformulated to avoid the negative side-effects that combination drug had on heart valves. Phen-fen was very effective for losing weight, but the unexpected side effects got it pulled from the market. Lorcaserin targets the exact same, well-validated weight-loss receptor. All of Arena’s Phase II data indicate that
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QuickLogic (QUIK) was up 9 cents yesterday and another 5 cents this morning, or 18% from Friday’s close, and I think this move is for real. The stock bottomed at 61 cents intraday a week ago Monday on low volume, but then word started to go around that QuickLogic blew ‘em away at the Mobile World Congress show in mid-February in Barcelona. What usually happens at these shows is the attending engineers and marketers go back to their respective companies and tell everyone else what needs to be pursued. Product data sheets are ordered, airplane reservations made and
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Rally in Great Shape So Far
With the market up about 11% from Tuesday through Thursday, which used to considered a decent return for a year, it was reasonable to expect stocks to back off on Friday. And so they did, until near the end of the day it became obvious that too many traders were short stocks, and they had to buy them back to get to a neutral position (“flat”) for the weekend. That gave us four straight up days for the first time in over a month, and the best weekly performance since November.
The professional reaction is just what we’d like to see: “The overriding question people have is
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Dear New World Investor:
Late last night (or early this morning, depending where you live) I sent a Flash Alert outlining the likely path for the S&P 500 over the next few days. I also emailed it to you, and if you didn’t get it, it was almost certainly blocked by your email provider. If you have whitelisted NewWorldInvestor(at)gmail(dot)com, it should not have gone into your spam folder, so the email provider is the problem. Send them a support ticket demanding they stop blocking your emails.
The essence of the Flash Alert is that we wanted to see a move up towards the 740 to 750 range today, before an expected pullback to test the 714 to 721 area. Assuming that support area holds, the next move up should
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Step 1 of Rally Over, On To Step 2
The rally started Friday almost exactly on the 664 energy level that I’ve been talking about. Fractal analysis is remarkably accurate at finding these energy levels long in advance. After a strong intraday rally Friday, the S&P 500 rested on Monday, exploded up on Tuesday, and rested again today. It is very common after a big daily move like Tuesday’s to have a day where prices go back down a little, then go back up a little, and end up almost unchanged. I would rather have seen a straight run to 740 to show more stored-up energy, but we must take what we get.
I doubt the S&P can get through the 740 to 750 range without a few days of weakness to consolidate the recent gains. But if this pattern sets up the right way, a little weakness now will lead to a very big upleg in a continuing recovery rally. I am looking for this sort of pattern:
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