A moment I was waiting for

Yesterday after the market close, news broke out that TrovaGene (TROV) fired both its CEO and CFO and has sued them for breach of fiduciary duty. The news immediately triggered a 50% decline of its share price at the extended hours. This is kind of moment I was waiting for to get shares of TROV I’d like to accumulate when it was on sale. A huge sale for this time! Unfortunately I did not notice this immediately during the night and only found this out this morning. “Bad” enough for me that TROV had already recovered half of its loss overnight in the early morning before the market opened but fortunately enough that it was still down for over 20% at that time. So I went ahead to buy some at the extended hours prior to the opening and hoped to buy more if it continued to decline after opening. But I didn’t get further luck as I was hoping for.

 

So what is TrovaGene that makes me so interested in it?  Well,  TrovaGene is kind of two companies in one - a small medical laboratory... and as a biotech research firm.  It holds the proprietary technology and unique tests that make it possible for oncologists to bypass traditional surgical biopsies and use urine-based tests to screen for certain cancers. That’s why it is called a “Liquid Biopsy” biotech. Without getting into too much complicated details, the main approach for cancer screen and confirmation at the moment still largely relies on invasive biopsy, which often is painful and inconvenient. You may imagine if by a simple non-invasive blood or urine testing most of cancers can be screened or eventually verified, what kind of market it would be! If you'd like to learn more about liquid biopsy, The New York Times has featured a story entitled  "Sidestepping the Biopsy With New Tools to Spot Cancer," (for paid subscribers only), or you can read this more scientific article,   Real-time liquid biopsies become a reality in cancer treatment for free.

 

Of course, we are talking about a new technology still at its infancy but it has already passed the concept stage and already in reality for screening for some types of cancers. TrovaGene is certainly one of the leading biotech’s that has already got some mature products in the market. I believe it has already signed at least 3 deals with some major healthcare providers to cover its testing. The most recent one is a healthcare-coverage deal with Fortified Provider Network, a benefits administrator with more than 4 million members nationwide. Commented by  Matt Posard, TrovaGene's chief commercial officer,  "Becoming a Fortified Provider Network member is an important milestone for TrovaGene, as we expand the number of covered lives with health insurance access to our [PCM] technology,"  "We continue to execute on our strategy to commercialize our novel liquid biopsy platform, and we look forward to playing a significant role in improving the care of Fortified's cancer patients with our non-invasive tests for the detection and monitoring of medically relevant oncogene mutations." Clearly TROV play is gaining traction as an ongoing business and we don’t often seen such a good sign this young and so early in small microcap biotech companies. That’s why I’m so interested in this company obviously for long-term as I expect TROV may someday become a major very successful biotech when liquid biopsy becomes more and more mature as a technology and more widely used to eventually replace traditional biopsy. It is a huge market to open up and TROV has already shown its leadership in exploring the very lucrative frontier! You may now understand why I want to accumulate TROV shares on its weakness, especially when it is on sale not due to business problems. I think the reaction to firing its CEO/CFO is a bit too much overdone and likely short-lived. I wish I had grasped the initial reaction movement to get in with a 50% discount but a 20% discount is not too bad as well. Of course, short-term there is no way to know if TROV will simply recover from here or it will further decline but I will be ready to buy more on its next sale, if it is not associated with business issues.


By the way, at close today, TROV has virtually fully recovered with only a -2% decline. What kind of an overreaction! I wish this could happen everyday!!!

JO has decisively broken out

I talked about JO, the coffee ETF, a couple of months ago around $19, expecting it would break out soon. My timing was certainly off as I was a bit early and JO instead went down first to below $18. But in the past 2-3 weeks, JO has done just as I expected and jumped high significantly. It has went up to $20.5, which has decisively broken out its downward trend line. I think this move is likely real in changing the bearish trend of JO in the past couple of years and may trigger a start of an uptrend. In the very near term, though, JO is a bit overbought and will likely come down to test its support. If it can stand firmly at its support around $19 and resume its up movement, we may see a good upside for JO in the months ahead.

Short Oil Now

About 2 months ago, I made a bold call "We'd likely see $40 oil before $20 in the weeks ahead". This was at the time that oil was trading around $30 and almost all the talking heads were very bearish about oil, saying that oil would go towards $20 soon. Naturally in this kind of situation, no one would agree with me and I immediately got some challenges from friends in the chat group,  arguing why the fundamentals would not support a higher oil and why oil should only go down. Actually my friends were right, but only for a very brief moment since oil did go down almost immediately after that and touched $27. While my timing was a bit off, my prediction turned out to be quite on the spot: oil has surprised almost everyone in the past few weeks and started a very strong rebound and closed above $41 just a few days ago. Of course, now the sentiment has changed and you start to hear more and more people talking about oil going up to $50 or even $60. Really?


Just to be clear, I'm not arguing that oil will not go up to $50-60 but I certainly do not think oil will go that high in the near future. There is simply no fundamental to support that. Rather, I think oil will likely go down towards $30 or even lower in the weeks ahead, supported by the technical analysis. You see oil has been clearly overbought at the moment and is bouncing against its multi-year downward trend line. Looking at the COT report on future trading, the smart money of those commercial traders are aggressively shorting oil. The chance is really not good to go long oil at this kind of setup. I'm shorting oil now. You can directly short oil via USO, or via the energy stocks ETF like XLE. More aggressive traders can even buy the leveraged inverse ETF for oil and gas, DUG. Of course there is no guarantee and I could be wrong, especially in terms of timing but I'm fairly confident that oil will go much lower from here as its next move.

Buy US Treasury

Due to a busy schedule this weekend, I don't have time to write. It just happened that my friend, Dr. Pan Yang, posted a note, which outlined a thought almost exactly reflecting what I'm thinking. Here is what Pan said: " It was very interesting in past few days,  10 years yield was dropping since Fed meeting.  TLT is forming a falling wedge which is bullish, sitting at support .  Sp500 is challenging all time high as the resistance zone. We all know the bond and equities are going opposite directions. I also mentioned few days ago that 10 year yield and equity market have been positive correlated in past 10 months. My 2 cents,  some things have to give up.  I would follow bond, since it may be smarter than equities.  If yield is continue going down,  that means bond investors can not see our economy have strengthen enough in the future months or years,  the equity market will follow soon. Or vise versa, we will have new bull market,  yield will bounce up and TLT will break support, continue falling.  Thanks for Yellen,  leave the door wild open for potential rate hike,  give people impression that our economy is in good shape, and keep this impression as long as she can, while the markets around the world are struggling.  It is very hard to imagine that US market can be the only one immuned from it. Anyway, I entered short positions today,  I could be  wrong but it is part of the game. Have a nice weekend"


Consistent with what I was thinking and suggesting to buy NLY due to likelihood of a continuous low rate era in the next 1-2 years, I do think TLT is a good buy now, which is an ETF for long-term Treasury Bonds. It is just bouncing off from its 50 DMA, a strong support and I think there is a good chance it will move up significantly higher in the months ahead. This will also likely be associated with lower equity markets as Pan has suggested.

A high yield income opportunity

Shortly after the financial crisis in 2009, I started to buy Annaly Capital Management (NLY). For those who don’t know what NLY is about, it is a government-backed mortgage investment company, or more officially NLY   owns a portfolio of real estate related investments in the United States. The company invests in various types of agency mortgage-backed securities and related derivatives to hedge these investments. In a simple way, NLY earns the spread or difference between the mortgage rate vs the bank interest rate. It thrills when the bank interest rate is low as the spread is bigger during such times. More detailed explanation about NLY may be found here in my previous blogs (here and here). As you can imagine, it was doing great when the interest went and stayed low during 2009 through 2012. Then the expectation for higher interest rates started to emerge around 2013, which has put pressure on NLY as investors become worried about the possible decline of its profit margin. NLY has indeed started to move down since 2013 and I closed my position along with this downward movement.

 

But I think NLY is becoming a good income trade again at the moment, which may last for another 1-2 years. You see, the worry about the interest hike in the past year was quite strong but it is clearly an overreaction. Yes, the Fed has raised the interest last Dec and is still taking about possible further rate increases this year. But I really don’t believe they can do that in the near future. The US economy is quite fragile and anything else around the world is nothing but disastrous. At the moment, the worry is not about inflation but more for deflation. And we can clearly see the signal from the bond market, which is much smarter than anyone else about where the interest rate may go. The 10 year Treasury yield has been below 2% for many months and I suspect we may likely not see higher than 2% for quite some time. I even think it may continue to go down further if the risk of recession become intensified. In this area, no one is better than Jeff Gundlach, the Bond God. I vividly recalled his prediction last summer at CNBC when the Treasury was over 3% that he did not believe the interest rate could go up but rather it would go down towards 2% by year end of 2015. Now we know what has happened about his prediction. Gundlach continues to believe the interest rate will stay low for very long time. This will be great for NLY and interestingly xx is also buying NLY now! You see, the relentless selling has pushed NLY down quite significantly and it is now below its book value by 13%. With this huge discount, its dividend yield has jumped to 11%. I don’t think this is risky high yield income. Buying NLY here should be relatively safe but always protect yourself by placing a stop around its recent low. This way, if we are wrong about this speculation, we can get out with a relatively small loss. Otherwise, we can enjoy a 11% income yield plus potential capital gains from its discount in the next 1-2 years.

Short gold miners

As I said I firmly believe in the super mega uptrend for gold, which in my opinion will continue for years as long as the world is trapped in this crazy financial mess. Understandably gold has been in a very severe correction for 3-4 years but I truly sense that we have likely seen its bottom around the level of $1000.Since the start of the year, gold has shown a very strong upward move and has for first time in years broken out its downtrend line. This is an important signal that it may have reached its bottom and may start to resume its next leg up move. But the past few weeks of bullish rebound was a bit too fast too soon and as I said, it has been in a parabolic move. This kind of move will always lead towards a sharp correction short term. I think we are likely seeing a start of this correction the passing Friday.


Gold mining stocks are usually a leading indicator for gold. Needless to say, they are also in a parabolic move. GDX has been above its 50 day MA by almost 20% and all the technical indicators are pointing to an extreme overbought status. As you can see below, the current move is very similar to what we saw last October when it was quite overbought as well. When it is going higher highs almost everyday, its MACD is starting to move down, a classic negative divergence suggesting the trend is going to change.  The Friday's "opened high but closed low" price action was a typical topping behavior, suggesting GDX has done it exhaustive buying by the last herd. This is probably the last push for GDX to go down. In the very short term, I believe GDX will move down towards its 50 DMA around $16.50 from its current high around $19.70. I think a 15-20% correction is likely. I couldn't help but bought some GDX puts as a short-term trade.

Don’t be a sucker!

Euphoria is everywhere in the market, period! No one could believe that we’d see this kind of rebound just 2-3 weeks ago when the market was at extremely depression around 1800 for S&P. At that time the media was screaming Chicken Little but you may remember what I said: “No immediate crashto come….yet”! Suddenly it seems everything becomes rosy and we have solved all the problems worried by the market just a couple of weeks ago. The herd is in a panic buying, fearing that they would be left behind if not in now. What a sucker’s game! Don’t be pulled into this trap. We are still in a bear market and this is simply a bear market rally. If you have already forgot what had happened last Oct, just look at the chart below: we are exactly repeating the same bear market rebound and now it has reached a nosebleed extreme overbought condition! Virtually all the technical indicators have shown such kind of extremes and some of them are at the extreme levels not seen in years, e.g. the McClellan Oscillators for NYSE and NASCAW (NYMO and NAMO) being at the extreme overbought levels not seen in probably a decade!! This is kind of rubber band that has been stretched as extremely as possible and when such an extreme occurs, it will snap back for sure. That will really hurt when it happens. Try not to be the one standing in the middle when the rubber band snaps back!

 

Can the market continue to march higher from here? Sure it can. But one thing is for sure that each inch higher just increases the risk of a substantial crash that may happen any day now. If you are itching to buy now, just first set up a pain level you can stand.