Turnaround opportunity for Dendreon (DNDN)?

For those who follow the biotechs, they probably know very well about Dendreon (DNDN), the only company which has successfully made an oncology vaccine that can prolong life for prostate cancer patients. Two years ago when DNDN was submitting the indication for approval, I actually watched the discussion of the ODAC, a FDA advisory board for oncology products where external experts provide their opinions and recommendations. The debate and vote were not straightforwardly positive for DNDN. I bet DNDN could not win an approval immediately, so I shorted DNDN. Of course I was wrong. It got the approval and the stock went wild. See the chart below. DNDN jumped from around $7-8 pre-approval to mid $20s instantly. I heard a biostats guy in BMS bet with over $100k for its approval and instantly became a millionaire. Given the high expectations for the success of the company, the stock went up further to its peak of over $50. Unfortunately everything is history now. In less than 2 years, its stock plunged over 70% to $7 or so, back to its pre-approval level! I wish the BMS guy already cashed in the huge profits before the plunge.

What went wrong with DNDN? The poor judgement and execution by the top management of the company is the key factor for its failure. The prostate vaccine is extremely expensive, something like $90K for a course. The problem is that physicians or patients will need to pay first from their own pocket while waiting for reimbursement that may or may not be approved. Of course there is a huge reluctance for anyone who has to pay such kind of money without knowing if they will get it back. So the sales of the vaccine, its only product, fall hugely short of expectation. Given the very high expectation already priced in the stock price, of course investors are extremely nervous and upset. So they simply run.

When everyone runs away, I start to become interested actually. Heck, this is a company with a still promising oncology product which has shown life-saving benefits. Does it make any sense that its share price is at its pre-approval level, almost like it hadn't got the product approved? I have a hard time to believe it. More importantly it seems the company management has realized where the problems are and are make great efforts to tackle them. Based on the latest earning call, significant improvement has been made in this front and likely sales will get much improved moving forward. I think there is a good opportunity here, especially when the sentiment for the company is extremely pessimistic. Any improvement in revenues will likely beat the very low earning expectation, which will trigger another run-up of the stock price. I think this is a good speculative opportunity for a positive turnaround for Dendreon.

Will Euro continue to decline from here?

I started to short Euro probably 2 years ago when it was close to $1.50. Along the way, Euro significantly plunged but bounced back strongly as well.  I discussed Euro several times in my blogs, e.g. here and here. More recently I was even questioning why Euro was still relatively so strong above $1.40. For me, Euro is a doomed currency and eventually will die and disappear or significantly altered. I stick to my timeframe that I think Euro will not be existing anymore in the current form within 5 years.

But today I exited some of my Euro short positions, of course with good profits. Why? As much as I even more convincingly believe that Eurozone cannot resolve their problems with the current structure and form in place and Euro will for sure fail, in the near term, I'm afraid Euro may bounce back. I was almost like the only person to be bearish on Euro several months ago, but all the sudden it seems everyone is bearish now and Euro dropped below $1.30 yesterday. As I have said from time to time, when something becomes too much focused and everyone believes the same thing, it is the time to be cautious and probably need to take an opposite action. I think the US$ is becoming too strong too fast lately and is susceptible to reverting its trend. If this happens, Euro will appreciate against the US$. I will jump in again to short more Euro at that time as ultimately Euro is a dead money.

Am I worried about dipping gold price?

These days, I must look like stupid! Whenever there is a big dip, I buy a little bit gold or silver. But they keep dipping. Today gold dropped to low $1600s. Each time my wife sees the gold price, she asks me why I buy gold at higher price; why not wait and buy at lower prices. Can I or anyone really know when is the best time to buy without looking at the rearview mirror? Obviously no one can! Even not the greatest investor, Warren Buffett!! If you always look back to pinpoint the best time and price, yes, everyone can be the trading & investment genius. But obviously majority of people lose money in the markets. No one has a crystal ball ahead of time, period.

Nowadays remind me of the time when I first bough gold coins about 5-6 years ago, when the gold price was at about $700-800 range. As soon as I bought the coins, gold prices were up and down but mostly were lower than the strike price for my gold coins. I was certainly upset and kicked myself why I did not wait for a lower price. Then looking back after a few years, I'm kicking myself again now why I did not buy all the gold coins I wanted at that time. Lesson? For a secular bull market like gold and silver, simply buy them at the best price you can at that time and stick to them. Don't look back and care about short term day to day price volatility. Gold and silver are just money for me. Just like I don't worry the exchange rate for my dollars, I don't care of the daily price of gold and silver. I only check their price because I want to buy more when they dip. Can gold and silver go further down in their price? Absolutely! And I would be happy to see that because I will buy more.

Where to save your cash

The market is too fluid and fast-moving. I wish it was a down day on Friday so that I could get my UPRO positions at a lower entry price. I did not get the chance. After it was down over 2% on Thu, the marketed was just fighting back strongly and roaring high all the day on Fri. The bullishness underneath is just too strong at the moment and you don't want to get in the way to fight against it. I set an open order for UPRO and did get it, although not the perfect price as I wanted. Will see how it turns out in a few weeks.

If you have a lot of cash, where to put it? Save in the bank, I guess most people would say so. Definitely for the money you need for daily living and expenses. Currently the US government will guarantee saving's deposits up to $250K for each person (the FDIC coverage). Technically speaking, your money within $250K should be safe even if your bank goes belly up. If your cash amount goes way beyond $250K, I'm not so sure that you can simply put them in the bank. With all the turmoils going on in the US, as well as in Europe that may certainly bring financial disasters to the US if the crisis explodes, we may see more banks bankrupted in the next few years. Ironically the large the banks are, the more danger they are given their higher exposure to bad debts both domestically or internationally. In this kind of case, I won't feel comfortable to "save" my money in a bank's saving account. Rather I will buy short-term Treasury Bills (often called T-Bill). Why so? T-Bills are a short-term debt obligation backed by the U.S. government with a maturity of less than one year. While in reality the US government is already broke, it is considered ironically as the safest government bond. You may notice, people worldwide often rush into the T-bills or other long-term US government bonds as the safe haven. Given the US government is the only one in the world which can print with no limit the world reserve currency, the US$, currently there is no worry for anyone that the US government will default. So T-Bills are simply the cash for US$. As the holders of the T-bills, you are guaranteed to get them back regardless of amount. I can guarantee you that we will see more turmoils in the years ahead and people will continue to rush to the T-bills as the safe haven. To me, gold and silver are much more valuable than cash or T-bills, but for most people they simply believe paper money or cash. If so, buying T-bills is more reasonable. I must warn you though that I emphasize "short-term" bills. Don't buy long-term (10 years or 30 years) government bonds as they are the biggest bubble brewing right now, which will burst eventually. When it happens, it will be a catastrophe if you hold them.

You may buy T-bills directly from the US Treasury but the simple way to do so is to buy the ETF fund, symbol SHY. See its one year chart vs S&P500. SHY (blue line) is rather stable with a year-to-date gain of 1.4%, which I think is even better than your saving interest. The S&P (green line) has been up and down rather volatile throughout the year. That's the difference between cash and stocks!

 

My next speculation for the year-end rally

As I expected, the stock markets plummeted quite severely today, over 2% for S&P500. This has instantly relieved its overbought condition. I think there is a good chance that stocks in generally will shoot up high in the next 2 weeks towards the year end. I plan to take the opportunity for a speculation for this year-end rally. I hope tomorrow is still a down day so that I may get a better entry price.

There are a few ways to bet on the rally. The mining stocks for gold and silver are probably the most undervalued ones at the moment. I think this is the least risky sector to take a ride. GDX or GDXJ are good ones for gold miners. If you can bear more risks, SSO, a 2 x bull for S&P500, is a good choice. Two weeks ago when the market plunged I got in both and am still hanging on with them. This time I'm thinking for a more risky one, a 3x bull for S&P500, UPRO. Hope I'm right for a quick short-term profit.

Home depot: A diamond in the rough?

The overall market is rather bullish at the moment and I'm still positive that it is on its way up towards the year end. However, it has been a bit overbought in the immediate term and today's price action (opened high but closed low) indicates some bearishness. A quick downturn is likely before its shooting significantly higher thereafter. If you want to catch up with the year-end rally, take the opportunity if it indeed comes down within the next few days.

With respect to specific stocks, I think Home Depot (HD) may be a good candidate to move forward. Fundamentally HD has reported a great third-quarter result, beating the analysts' estimates. It also raised its full-year earnings outlook as well as increasing its dividend by 16% to around 3% yield. Recognizing HD's improving financial status, the rating agency, Fitch, upgraded its rating on HD to an A- last week. You may ask, isn't the housing sector in terrible shape right now? Yes, I agree. I don't believe the housing bubble has completed its full course in its downturn. We may still see some price drop in the housing market. Having said that, I would think the housing market is very close to its bottom, if not yet at the bottom. The main customers for HD are the home owners who still need to spend money to maintain their homes including more discretionary items such as kitchen cabinets etc. As the HD CFO, Carol Tome, said: "We see the core repair projects remain strong. We do see some movement in big-ticket items."Given the much down-beaten  expectations for HD in the past 2-3 years, a slight improvement will be great news for it. 

Technically speaking, HD has moved up beyond its 200 day moving average (MA), an indicator often used for a long-term trend. It is actually right at its 5 year peak around $40. If it breaks through this level, it is a strong momentum to move higher. Of course, if the overall market "corrects" in the next few days, HD may also drop. I think it would be a good buy, more so if it drops to its 200 day MA at around $35. This is often its strong support level to launch its next upward movement.

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Bet on a year-end rally now!

It's great to be back. Unfortunately it turned out that I could not get to my blogs while I was away in the past 2 weeks. Retrospectively what a dramatic 2 weeks it was! Two days (Nov 15) before I left, I predicted that both stock markets and oil would decline severely in the near term. Almost like I could manipulate the markets, it turned out exactly as what I had expected. See below that both stocks and oil dropped over 5% immediately within a week (blue for oil & yellow for S&P500).

I also said that it would be a good opportunity to buy stocks if they indeed declined, since I expected that the stock market would be doing well in the next few months. While the blog pages were blocked so that I could not log in, I could still get into my trading account with no problems. When people were panic and scared in the week of Nov 21, I was happy and bought quite a lot of mining companies and good companies like Coca Cola (KO) etc. I hope you did so as well. If you wanted to be a successful investor, you simply can not follow what a general trader or investor do. Otherwise you are doomed to fail! With respect to oil, I got out ERY as well with a good short-term profit. Although I had expected oil to plummet more, I took a quick profit when the overall market sentiment was too bearish, which often indicates a quick turnaround. I was happy that I was not too greedy to hang on with ERY.

I expect we are now on a safe way for a year-end rally. Technically and seasonally it is just a good time for stocks, regardless how dire the overall economic and debt situations are worldwide. The market is not always rational. If it wants to go up, it will regardless. I think this is such a time to safely bet for a uptrend, at least towards the year-end.