ACAD Pharmaceuticals + 23.91% Today

We started buying ACAD in February and wrote about it here ACAD Pharmaceuticals - ACAD.  Today ACAD advanced 23.91% on heavy volume of 22 million shares.  The company was a presenter at the (AAN) American Academy of Neurology yesterday and reiterated the November Phase 3 results of Pimavanserin.  

ACAD has to just duplicate the prior phase 3 trial they completed in November, and if they do data should be good enough for FDA approval. They will be starting that trial by April and finish the trial by the end of 2014. The lead drug Pima will also be tested for (ADP) Alzheimer's Disease Psychosis in the second half of 2013. The long patent life to 2028 makes the company a good takeover target for large pharma sometime in the next two years. 

Year to Date Asset Performance

One would think that with the amount of stimulus the Federal Reserve has been printing, that commodities and perhaps precious metals would be the benefactor of such stimulus along with stocks.  From the chart below, it looks like only stocks have received the share of appreciation rising roughly 9% year to date.

Stocks (SPY) has outperformed copper (JJC), soft commodities (JJG), oil ($WTIC), gold (GLD) and bonds (TLT) by a wide margin.  With these type of returns there would be little reason to stop the asset purchase programs currently running as long as inflation is kept in check.  Of course bonds selling off creating rising bond yields is not the ideal response that the Fed wants to occur either.  Bond yields are too low at present to worry about that scenario playing out.

Bottom Line:  The stimulus of 85 billion a month in a combination of mortgage backed securities and treasury purchases have had a positive effect on stocks, and a muted effect on other asset classes such as commodities, precious metals and bonds, putting the stimulus programs in the sweet spot for now.  I think any market pullbacks will be in the range of -3% to a -4% sell off in the intermediate term.  Thank you for reading.  

New Market High

A new market high was achieved this week depending on which index you follow.  Below is the Dow Industrial Average Index.  This week marked a new high on that index eclipsing the 2007 high of (14,198).

Although we have reached new all time highs in the market, the important thing to note is where does the market trade from here, until the rest of the year.  As of today the Dow is up about 9% as of this writing.  

Bottom Line:  Stocks on a P/E basis are not expensive at a projected (13.6) - 2013 earnings, below the historical P/E average of 15.  Against ultra low treasury yields, stocks can be deemed relatively cheap also.  I expect some market pullbacks to be short lived in the range of -3% - 4% the rest of this year as there is plenty of Fed induced liquidity waiting to enter the market.  Thank you for reading.  

Mixed Market Picture

A truly mixed picture as far as technical analysis is concerned.  So to the charts we go.

The NYSE Summation index above is already on a sell signal as it has crossed below it's moving average.

The chart above is the NYSE advance divided by declining stock ratio.  As near term history shows the market is a buy when this ratio drops below the 1.2 number.  At present there is not an edge either way to add long or short.

Above is the TRIN index.  This is a shorter term index that measures advance and declining issues and volume.  There is no edge long or short for the near term.  

This last chart is the USD index long exchange traded fund on a weekly basis.  I have shown in the past that a stronger dollar has been a detriment to stocks rising and a weaker dollar is a benefit to stocks.  In the long term a rising dollar signals a stronger economy.  The fact that the market has been strong despite a rising dollar gives merit to the strength of stocks at present.  

Bottom Line:  We have a strong trending market on an intermediate term basis, with some indicators (like the NYSE Summation Index) above signalling a change in trend should have already occurred or is about to occur.  Also the NYSE Advance / Declining stock ratio above, there isn't an edge either way, to placing new long or short positions today on the indices.

Mid Week Update

This is a confusing market that is being juiced with plenty of liquidity from the fed.  Below are a few charts as we tread the volatility the last few weeks.

The TRIN index above is a breadth indicator that compares advancing and declining stock issues and trading volume.  With today's move higher we are very overbought.  I expect some consolidation in the next couple of days to work that indicator off it's overbought readings.

The NYSE Summation Index above has given a sell signal as it has crossed through the moving average.  With the volatility as it has been the last few weeks, we can potentially move above that moving average in the next week or two.  

After yesterday's and today's move higher, I would have expected the put/call ratio to also elevate much higher also to complacency levels. The level is just above the neutral line where there is not much edge either way as to the high complacency or panic in the market.  

Bottom Line:  Today was a strong day for the markets led by some improved economic data.  I expect we see new market highs in the coming weeks with continued better data, and plenty of liquidity via the fed.  Thank you for reading.   

Acadia Pharmaceuticals ($6.09)

ACAD focuses on small molecule drugs that address unmet medical needs in neurological and related central nervous system disorders.  The lead drug Pimavanserin will be conducting another phase 3 for the treatment of Parkinson's Disease Psychosis (PDP).  The company announced positive results for a just completed phase 3 trial for Pimavanserin in November.  The FDA has requested a repeated phase 3 trail similar to the just completed phase 3.  The company plans to launch that second phase 3 by April.  They will also be launching a phase 2 trial for Alzheimer's Disease Psychosis (ADP) the second half of 2013.

The chart above is a 60 minute two month chart.  The stock has been consolidating over the past 13 days between the range of 5.80 - 6.40. The longer the consolidation lasts the greater the potential move once it breaks out.  

Bottom Line:  ACAD has to just duplicate the prior phase 3 trial they complete in November, if they do data should be good enough for FDA approval. They will be starting that trial by April.  The lead drug Pima will also be tested for (ADP) Alzheimer's Disease Psychosis in the second half of 2013. The long patent life to 2028 makes the company a good takeover target for large pharma sometime in the next two years.

Trending Higher

Stocks, commodities, high yield bonds, and precious metals have shown the propensity to drift higher behind the fuel of liquidity injections from the Federal Reserve.  So despite a global economy that has remained sluggish, stocks can rise nevertheless.  That is exactly what we have been experiencing here and abroad.  Below are a few charts that have given some shorter term sell signals.

Notice the breadth indicator, known as the Summation Index above, is at the point of crossing below the moving average.  Typically this will signal a weaker stock market in the future.

The chart above has the record high index in the upper pane and the S&P 500 in the lower pane.  The record high index has equaled the two year high and is trending sideways signalling exhaustion.  

Finally the VIX Index which has been referred to the fear gauge is at complacent multi-year lows and trending lower.  There is not a lot of fear in this market at the present time.  

Bottom Line:  Markets continue to make new highs despite the above charts signalling either complacency, or overbought readings.  I expect market highs to continue, as we are experiencing a new paradox in capital markets where induced liquidity, and currency depreciation are a top priority among central banks worldwide.  The liquidity injections and weaker US Dollar have aided the S&P 500 in moving higher.  Thank you for reading.  

Some Charts of Interest

Scanning through my charts this weekend, I noticed many displaying extreme conditions.  So below are a few.

Above is the transportation index.  The index is a leading indicator for the health of the economy by moving goods from point A to point B.  The stocks in this index are extremely overbought and in new high territory.

The new highs - new lows index has been hanging at complacent levels for the past few weeks.  Not an area to be loading new long positions. Compared to the panic low area above, buying was lower risk.

Just to show how strong of a market uptrend we are currently experiencing.  AAPL (a stock that is represented in more funds than most any stock) lost -12% this week alone and the mark closed at new highs again this week.  So any recovery by AAPL stock, would bode well for more new highs.  

The Tale of Two Stocks

AAPL reported 4th quarter earnings this afternoon.  Results came in shy of expectations. Chart below.

AAPL is selling off after hours to the tune of -10%.  We originally mentioned shorting AAPL at around $538.00 per share.  The long term play (shorting AAPL) should be held until $315.00 per share which is where the trend reversal pattern price point is displayed.  

Nokia, unlike AAPL is trending higher, and will reveal 4th quarter earnings tomorrow.  More importantly the company will reveal sales for the Lumia 920 and give some guidance.  We originally started buying NOK here Nokia Technical Pattern, at around $2.60 per share and have used options along the way also.  

Bottom Line:  AAPL is down -15% 2013 year to date, while NOK is up +17% year to date. There has been a shift in investor sentiment regarding these two stocks.  Both stocks still have significant downside (AAPL), and upside (NOK) according to their respective charts. Thank you for reading.
 

APPLE Update

I was asked to update AAPL. I mentioned that AAPL looked like a good technical short based on a head and shoulders reversal patter that it was displaying.

Above is the current pattern of AAPL.  Notice the stock has broken the neckline of the head and shoulders confirming the pattern.

Above is a daily chart of AAPL.  Notice that the 50 day moving average is trending lower (bearish). Prior to today the stock had been oversold on a shorter term basis setting up or a bounce (today).  The stock Is still under the neckline and the 50 dma, keeping the trend reversal pattern intact.

Still Bullish

We are still bullish on the markets.  Below are just a few charts that support a bullish focus for stocks continuing to move higher.

The transportation index above is right at all time highs for this index fund. The chart is still not overbought on the RSI, giving more upside ahead.  The transportation index is seen as a leading economic indicator for moving goods from point A to point B.

The bullish percentage indicator above measures the number of stocks on a Point and Figure chart that are on a buy signal.  Clearly trending higher and above the moving averages.

The NYSE Summation Index is a breadth indicator that measures daily advances minus declines.  The index is trending strongly higher and above the moving average.

Bottom Line:  We have a higher trending market that has the look of moving higher in the coming weeks before hitting extreme overbought conditions. Thank you for reading.

Nokia Update

Nokia (NOK) has received back to back negative news that has caused the stock to experience some temporary volatility.  Back taxes owed in India and patent infringement are the cause of the volatility.

On the daily chart above.  NOK is in a 17 day consolidation level that runs from approximately 3.80 - 4.30. Having stayed at this level for this period has worked off some overbought reading.

The weekly chart above, illustrates a bullish cross (13 exponential over the 34 ) after close to two years of lower trending.  The weekly chart looks good, and I would expect a move to around the 5.00 area for this trend to continue.

Bottom Line:  We originally began buying NOK at the 2.60 level, and plan to hold the stock through 4th quarter earnings, and beyond, as long as the turn around story keeps improving.  The charts look fine with the weekly chart experiencing a bullish cross.  Thank you for reading.