The team at High Chart Patterns, which offers stock newsletters, wrote in with some tips on breakout / breakdown trading. Also be sure to read their tips on stock trading psychology.

"There are two parts that have to come together before a trade is entered. The first one is simply to have a certain pivot price that seems to represent an important point — be it a new high or a break of an established base.

Here are three examples of breakouts whose charts we have saved over the years:

(more…)

As many of you know, I've been following Tysabri and Elan ever since this blog has been running, ever since ELN was $6.

Today, the whole issue has been resolved, as the FDA has cleared Tysabri to be remarketed to MS patients. As I speculated months ago, the whole issue with Tysabri was that it was unsuitable for immunosuppressed patients. Fortunately, routine screening of blood plasma should be able to screen for patients with abnormal immune function.

ELN and BIIB stock sold off sharply today because the FDA did not recommend Tysabri to be used as a first-line therapy. I am really disappointed by this ruling because it doesn't make sense to me. I've skimmed all the studies on Tysabri, and in my opinion, there is no reason that Tysabri doesn't deserve an "all-clear" exoneration from the FDA.

My impression from reading the FDA guidelines released today is that the FDA is still NOT CERTAIN on the exact mechanism of PML. Read question #4 to see what I mean. They've been reviewing clinical data for over 1 year, and this is the best explanation they can come up for PML. Sure, they know that it has to do with immunosuppression, but even I could have told you that a year ago. My opinion on the FDA's reluctance to give Tysabri their full blessing is that they are just trying to cover their ass!

Unfortunately, since the FDA has chosen not to recommend Tysabri for first-line treatment, I expect that analysts will be lowering sales estimates for the drug. (EDIT: Although the FDA has not recommended first-line treatment, patients who want it can still work with their physician to get it).

Oh well, at least today was a clear victory for the MS patients. I will also be watching tomorrow's ELN conference call for more clarification on today's ruling.

The more I think about it, the more it seems like Apple is really just a REALLY successful marketing company. Their slow pace of innovation in the last few years is really disappointing.

To stay competitive in the tech sector, you have to keep on innovating (Red Queen Hypothesis definitely applies to tech). For instance, you see GOOG rolling out new services every quarter. You also see YHOO adopting EBAY's PayPal service to power its new wallet services.

But what's AAPL doing? For the last couple years, all they've been doing is squeezing every last penny out of the iPod, iTunes, and Mac franchise. They take ordinary technologies and dress them up to make them look shiny and appealing to "hip" Americans, who consider Apple to be a luxury brand. And yes, for the last couple years, they've been VERY good at this… But what's next?

They're making iPods that are slightly smaller, slightly cooler. They even made one that plays video on its tiny screen. I'll admit, they've completely cornered the MP3 market, but where is the innovation? When they run out of ideas on what to do to next, the value of the iPod brand will depreciate, and they will lose sales (PiperJaffray analysts have found that iPod sales may be beginning to slow down).

Then there's their laptop business. I think they really messed up by switching to Intel chips. By porting OSX to the x86 architecture, they are making it possible for PCs to run OSX. Even though I don't think AAPL's hardware is very innovative, I think that OSX is a goldmine. OSX is such a solid operating system that people are willing to pay extra for overpriced hardware to run it. Now the PCs and Macs are able to coexist, will people still be willing to pay the extra amount for a Mac? PCs are dirt cheap compared to Macs. How do you think Apple users are going to feel when they see people running OSX on Dells? or running XP on Macs? By allowing XP and OSX to coexist, AAPL is diluting the value of the Mac brand. I know that it is currently illegal to run OSX86 on a PC w/o a license, but keep in mind that OSX is just as susceptible to software pirates as XP is. This WILL become a significant issue in the near future.

I'm impressed by the pricing and specs of the MacBook (except for the black one, which has a braindead $200 premium on it), and I am sure that they will move billions of dollars of product, but this expectation is already priced into the stock. MacBook sales will have to beat analyst expectations (which are high) in order for AAPL stock to make another bull-run.

Oh and iTunes. It's a decent service, but that market is getting more and more competitive as services like Rhapsody, Napster, allTunes (I personally use this one), etc, chip away at iTune's marketshare. Good luck Apple. $1/song might have been appealing to users a few years ago, but in the tech world, times change really fast, and now people want dirt-cheap, non-DRM, flat-rate music downloads.

As AAPL teeters on its 200DMA, I will be watching closely to look for hints on how the smart money is trading AAPL. Also, if you look at the OBV on AAPL, you will see that sell volume has been predominant in the consolidation channel (bearish divergence).

And nevertheless, even though I am bearish on the stock, I have to admit that the black MacBook Pro looks pretty cool.

UPDATE (5/30 11:20AM PST): AAPL is being dragged down with the market and has broken down at the 200DMA.

So I thought of this idea the other day, and I call it "Market Terrorism." I thought of this idea after watching the second season of 24 where business executives involved in the oil industry try to get the US to invade the middle east to drive up oil prices. Does this sound familiar or what? If not, let me jog your memory… Bush, "WMDs", Iraq, $60 oil, Cheney, Haliburton, big oil making record profits. 

Anyway, I don't really care for politics, so I'll continue…

"Market Terrorism" is when people perform acts of terror in order to drive up their stock holdings.

I honestly wouldn't be surprised if it already happens in real-life, considering the extent to which people will go to make money.

For instance, with the birdflu being a hot topic in the news, a "Market Terrorist" could bet big (ie, buy call options) on bird-flu stocks, and then somehow get the bird-flu into the US. It shouldn't be that hard… Just fly to China, smuggle in a chicken infested with the disease, and dump the chicken in Times Square. Consequently, the news of birdflu cases reported in the US would drive up these stocks like CRAZY, and the market terrorist would make a killing… only at the risk of causing a world-wide epidemic…

Also consider 9/11 and the effects that the attacks had on airline stocks. Anyone involved in the plot could have easily made 2000% returns by playing put options on airline stocks.

Do you think acts of market terrorism have occurred in the past?

Can Homeland Secuirty try to monitor securities for abnormal put/call activity to predict acts of terrorism?

What do you think?

I filled up my gas tank last night in San Jose for $2.85/gal for the cheapest gas. Crude prices have been ripping in the last couple weeks as rumors have been fueling oil traders to take on speculative positions.

Crude prices shot up 2% today on rumors that Bush will be launching an attack on Iran to destroy its nuclear weapons program.  Seriously, I wouldn't be surprised if geopolitical conflicts involving oil supply lead to World War 3. China and the US are scrambling to buy every last drop, and caught in the midst of it is the Middle East.

I don't really care much about politics, but I'm really surprised at how easily the US is getting away with finding ways to colonize the Middle East. Bush used 9/11 to invade Afghanistan and generate psycholoigcal support for anti-terrorist ideaology. Then, the campaign in Afghanistan somehow led to the belief that Iraq had WMDs (why not invade N. Korea, known to have WMDs)?? And now that Iraq has been taken care of, Iran is next?? Then again, it's hard to blame Bush completely, since what he's really doing for America is making sure that we have enough oil to survive for the next couple hundred years. I have no idea when all the oil is going to run out, but I hope it's after my lifetime, because at this rate, it's going to be really ugly.

In the longterm, when the oil runs out, Bush will probably be praised for his precocious decision to hoard oil for the sake of the preservation of the United States. However, in the short-term, a war in Iran is going to be a disaster for the economy (unless if you're in the oil biz).

What's your position on the issue?

A couple months ago, Tom Bulkowski, the author of Getting Started in Chart Patterns, sent me a copy of his book to review.

I've finished reading the book cover to cover, and overall it's a great book for any trader's personal library. The problem with a lot of technical analysis books is that they provide generic information that can be easily be found at sites like StockCharts.com or Investopedia. However, Tom's approach is unique in that he provides case studies of chart setups.

His book is a very thorough compilation of stock chart patterns including the common patterns like ascending triangles and head and shoulders. Again, what is very unique about his book is that he walks you through all the steps. First, he shows you how to identify the setup, and then he provides detailed strategies on how to trade the patterns, including stop-loss prices and sell targets.

He is very realistic in his charts, and even has statistics on how often chart patterns are successful or busted. He even has avg percent gains listed for every pattern. This book is a great buy for those who are getting started in technical trading, and for only around $12 at Amazon, it's well worth it!

My roommate Colleen mentioned that drug companies are looking at the CB1 receptor, aka the cannabinoid (think marijuana) receptor to help develop a drug that will curb appetite and therefore treat obesity-releated disorders.

Think about it like this. When people smoke marjiuana, they get a case of the "munchies" because the THC stimulates cannabinoid receptors, which somehow activate a pathway that upregulates hunger and taste. There has been some research done on mice that shows that blocking these receptors or removing them can actually decrease appetite (caution: I haven't read the research so I don't know how valid it is). Even in the absence of marijuana or THC, the body produces endogenous transmitters that stimulate the CB1 receptor.

SNY, Sanofi Aventis, is currently working on a drug called Acomplia (rimonabant) that blocks these CB1 receptors, causing a loss in appetite. If this drug is approved, it will be a huge billion-dollar blockbuster drug for SNY simply because of how severe of a problem obesity is in America. Americans are obsessed with slimming down without having to deal with diet or exercise. The drug's approval is currently in the air right now, with the FDA requiring that Acomplia meet additional conditions, and the management staying tight-lipped. There's supposed to be some more info released next week about the approval status, so keep it on your watchlist.

It's a bad idea to gamble on FDA rulings unless if you're a pro or if you're 'well-informed', but I just wanted to bring up this stock because I really like the chart technical analysis on SNY. It has a hot uptrend that is well-supported, and just from looking at the chart alone, it looks good as a buy and hold investment. I'm not sure how much Acomplia has already been priced into the stock, so do own your research on this one, because I honestly only spent 10 minutes on this.

DISCLAIMER: I do not have any positions in SNY.

I'm surprised how well Apple's iTunes service is prospering. I used iTunes a couple times but I just feel that people aren't getting their money's worth. AllofMp3.com, a Russian mp3 filesharing network, offer music downloads for about $.10/song with an interace just as nice as that of AAPL's. I'm not sure how legal AllofMp3's operation is, but it seems like theres a big controversy over it. Nevertheless, as more and more people discover this service, how will AAPL's iTunes service stay competitive? Something to think about.

I am focusing on only the Tysabri aspects of the ELN conference call. 

AAB-001 has moved from Phase 1 to Phase 2 clinical trials. This was new information for me (I’ve been out of the loop for awhile). This is an Alzheimer’s drug which has potential to be a bigger blockbuster than Tysabri because it has a much larger market. This drug is far from approval, but it’s good to keep this in mind if you are planning on investing in ELN longterm.

The FDA is expected to rule on the Tysabri sBLA, which was granted priority review, by the end of March. There will be a FDA commitee on March 7 which will discuss Tysabri risks, PML, efficacy, risk management, and possible remarketing plans. Patients will be able to speak at this committee, which is great news for shareholders because patients are very passionate about Tysabri’s return. In fact, I get a lot of encouraging emails from MS patients who have read my analysis of the Tysabri situation.

Their current financial model is based on the assumption that Tysabri will be remarketed in Q2 2006. AND, the model includes the assumption that Tysabri is expected to launch in the EU in the 2nd half of 2006!! This is HUGE news for me because Tysabri has never been available in the EU, which will greatly increase the number of patients who can access the drug.

BIIB, Biogen Idec, has been continuing to ramp up production capacity as well! There has also been advancement in the high-titer process, which I discussed a few months ago.

A BLA for Tysabri’s treatment of crohns disease will be filed immediately if the FDA rules favorably on Tysabri’s sBLA for MS. This will also increase the market for Tysabri.

My speculation on Tysabri still stands. I believe that the reviews will show that PML cases only arise from patients who are immunosuppressed, and that risk for PML can be controlled by monitoring patient’s immune system activty.

Don’t forget to check out my past analysis of Tysabri and ELN.

DISCLAIMER: If you haven’t noticed yet, I’m long on ELN.

We trade ownership of companies on the NYSE, NASDAQ, and AMEX. We trade oil and metal on the NYMEX. We trade currencies on the FOREX. We can even bet on Hollywood movies on the Hollywood Stock Exchange. Awhile ago, a reader even pointed out a fake online market where people could trade futures on terrorism, betting on where acts of terrorism would happen next.

Enron invented the idea of trading energy, and their traders made tons of money moving energy around the country (though they manipulated the markets). Even though Enron's trading was crooked, I really wonder, what else can we trade? Or maybe it's possible to improve upon an existing market? For instance, the Nasdaq revolutionized the way we trade stocks by eliminating the need for an actual physical location for traders to meet.

Anyway, whenever I'm bored, I try to think of new ideas on how to make money. One of my hopes is to create an open, online, free market, where people can come trade some type of commodity (I can't come up with any good idea yet). All the easy things to trade, like stocks, oil, and gold, are already being traded on well established markets. I just hope to think up some crazy idea that will work. Maybe one day you'll hear about the BTX, The Bull Trader Exchange, where traders from all over the world come to trade _________.

WikiTravel is an amazing idea. I wish I had thought of this. Basically, anyone on the Internet can come to this website and write travel guides for places around the world. People will participate in building guides because a lot of people are really into traveling. A lot of people will use this resource because of how helpful it is.

(more…)

I have finally witnessed how easy it is to make money in a bull market and how easy it is to lose it in a bear market.

I only started tracking the markets just a few months ago in July, which happened to be in the midst of a roaring bull market. At that time, I woke up every morning to a watchlist bathed in green, which gave me a deceiving impression of making money in stocks. It looked so easy to me at that time.

Then in October, with the markets in a meltdown, I got a bitter taste of the bear market. It is nearly impossible to make money (going long) in a bear market.

An interesting indicator of market strength is actually the amount of traffic that comes into my blog. During the October meltdown, I saw the lowest web-traffic to my site ever. After the reversal, web-traffic to my site gradually increased again as "bull traders" returned to their computers.

So yeah, I guess the lesson to take away from this is to always track the indices and overall markets before initiating trades.

“Remember there are no shortcuts. Quick buck artists come and go with every bull market but the steady players make it through the bear markets.” – Lou from Wall Street.

It seems like everyone is mad that big oil companies like XOM, BP, and CVX have been reaping record profits this quarter because of high crude prices, but I don't think it makes sense to blame the oil companies.

"Big oil behemoths are making out like bandits, while the average American family is getting killed by high gas prices, and soon-to-be record heating oil prices," Sen. Chuck Schumer, D-N.Y., said in a statement."

So… just because this company is making a ton of money, you expect them give free handouts to help subsidize energy costs for low-income families? That would be nice, but it really doesn't make sense. Did Exxon beg for free handouts 3 years ago when crude was $30/barrel? If Exxon were a state-run oil company like China's CNOOC, then yeah, I would expect them to give back to the people, but this obviously isn't the case. Exxon is NOT guilty of anything!

Of course, I hate high oil prices too… It costs me $40 to fill up my tank, and it's slowing down the economy, but it would make more sense to increase funding for alternative energy research than to whine about a successful company.

However, a reasonable point made against XOM is that they have been holding off on building refineries in order to artificially decrease supply.

Court said oil companies have strategically refrained from building new domestic gasoline refineries so that tight supplies would push up prices. "Now Exxon needs to invest that money in making more gasoline," he said. "Neither Exxon nor the industry has opened a new refinery since 1976 because the companies know keeping refined supply low is a recipe for huge profits."

Assuming this argument is valid, there still isn't much you can say. Exxon is a business, and the purpose of a business is to make money, not to make people happy.

Like it or not, that's capitalism.

I fell asleep in Bechtel Lounge today and when I woke up, I overheard some professors talking about Web 2.0. They were talking about how blogs would eventually come to compete with the corporate media (NY Times, c|net). I looked up the Web 2.0 concept and I really think everyone should read it.

Bloglines is one of the hottest trends on the web right now. Newspapers and online news sites like news.yahoo.com simply have way too much content. In my case, the only section I actually read in the newspaper is the front page and the comics. Bloglines is the newspaper of the future. I can quickly and conveniently scroll through new stories, and only topics that interests me is delivered to my account. In this case, I have sites like KnightTrader for market news, HardOCP for tech news, Reuters for real world news, etc.  It’s like having a personalized newspaper availible for me 24/7.

(more…)

I really question the existance of analysts. It's not like you can succeed at investing simply by arbitrarily buying stocks that analysts think are a strong buy. For instance, did you know that those idiots on wallstreet maintained buy recommendations on Enron up until the company collapsed? What about the 2001 tech bubble? I didn't take the time to look this up, but I wouldn't be surprised if tons of analysts set astronomically high price targets on stocks like CMGI, JNPR, BRCM, right before the dot com collapse.

So yeah, what the f*ck is the purpose of analysts on wall street? Why do their downgrades and upgrades have so much bearing on a stock price?

(more…)

AAPL hit a homerun with their recent release of the iPod nano. I've never liked iPods until now. The old ones were too chunky, white (too girly looking), and hard-drive based (too easy to break). The iPod minis looked like cheap toys, and the iPod shuffle is just retarded!!

The iPod nano is black (expensive looking), flash memory based (no moving parts, harder to break), and thin. It's so awesome that I just ordered a black 4gig nano. Be sure to buy through apple.com/education for a $20 discount if you're in college.

The singlemost expensive component in the nano is the flash memory. CANSLIM Investing has a great writeup on investing in Samsung, the company that supplies memory for the 4gb nanos. Arstechnica, a technology website, has found that Toshiba supplies flash memory for the 2gb nanos.

While Apple made a home run with the nano, they absolutely struck out on their joint venture with Motorola (MOT) on the Motorola iTunes ROKR. I was really surprised by that crappy design. How did the makers of the elegant RAZR and the sleek iPod end up designing something so nasty?!?