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Buzz Bits: Dow, Nasdaq Close in the Red

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Editor 's Note: This is a small sample of the content available on the Buzz and Banter



Flu-Fighting - David Miller - 2:24 PM

MedImmune (MEDI) news today that FluMist does a better job against the flu than an injected vaccine is really no surprise. FluMist creates antibodies where influenza first gets a foothold, injected vaccines only create antibodies to combat influenza in the bloodstream after it gets its initial foothold. The problem with FluMist is high cost to produce, distribute, and store. The CAIV-T formulation will help with the last two, but the drug will always be significantly more expensive than an injectable. When Glaxo (GSK) acquired ID Biomedical, they got FluINsure. It is also nasally administered, but it is almost as cheap as an injectable to produce, store, and distribute. FluINsure mimics the foothold immunity of FluMist and the backup bloodstream immunity of an injected vaccine. Early tests suggested it was superior to both. Glaxo has been non-committal about its plans for the drug, but if MedImmune starts gaining share with FluMist I'd expect Glaxo to use FluINsure to successfully combat that market threat.


Mini-Minyan Mailbag - Todd Harrison - 2:21 PM

"Toddo, I know you are short some financials, but I also know you talked to a friend who thought the BKX could work to 140. Could you give me a short snip on why big money is rolling into the BKX? I watched for 3 months as the money rolled into the XBD and did nothing and now if they want to rotate into BKX I don't want to miss the ride. How much do you respect your friend's opinion? Also, could it be as simple as positioning for a slow down in the second half, leaving growth for liquid divy payers? Any thoughts would be greatly appreciated. Thank You
Minyan Ed"

ME.

John Roque of Natexis Bleichroeder (and MIM3 panelist) is a very smart technician--with an emphasis on "very"--and there aren't many chartists who I respect as much as I do him. With that said, it's worth remembering that technicals are but one of our four primary metrics so we must factor that into any trading equation.

Yes, I've been trading around the short side in the group, a decision that was entirely painful into the teeth of Boom Boom's testimony but has since abated (as the brokers fell off the ledge). That being said, and as this isn't about "me," I will offer that there are two sides to this trade and they're both named liquidity. It's pretty evident that money has rotated into the money centers and, as we've discussed, many of them sport snazzy technicals. The questions now becomes:

  • Can the banks continue to side-step potential smoke in the mechanism?
  • As the "proxy" for continued liquidity, will the liquidity itself manifest?
  • What are the ramifications of higher rates on a leveraged consumer?
  • How will that consumer react to a "slowing" housing market?
  • Will the fund community wake up and smell the next-gen leadership (energy and metals) and rotate away from tech and financials?

A lot to noodle on, to be sure, but "reading into" your note, it feels like there's a fear of missing involved in your decision making process. If that's true--and be honest with thyself--I'll ask you to check that emotion before risking your hard earned coin.

R.P.

Position in financials



But if gas prices drop, his rating will pop... - Jason Goepfert - 12:04 PM

There has been quite a bit of discussion lately about seasonality, in terms of the Presidential election cycle. Historically, the second and third quarters of mid-term election years tend to under-perform.

There has also been a fair amount written about President Bush's rock-bottom approval rating. The two concepts seem to go hand-in-hand, so I checked the quarterly returns for any mid-term year in which a Presidential approval rating was less than 50% heading into the 2nd quarter.

There were only three occurrences: 1950, 1974 and 1982. The 2nd-quarter returns in the S&P 500 those three years were +2.3%, -8.5% and -2.1%. The 3rd-quarter returns were +12.5%, -32.4% and +7.6%.

Not sure there's anything we can conclude from that, but I know some Minyans were curious about the possible ramifications.



On the news... - Scott Reamer - 10:55 AM

Given the increasing attention paid in the popular media to the woes of the USD, I feel compelled to mention that my firm's work, as it did in late 2004, indicates a strong probability that the USD is NOT yet complete with its mean reverting bounce off the Jan 2005 lows. There are several complexity-derived support targets in the 83-85 area over the next 1-3 months.

In time, the dollar, for all the reasons many on the 'Ville have suggested for several years, will probably be one of the best shorts in the markets. But no security, no matter how flawed macroeconomically, goes down in a straight line. And the USD is no exception. If a deflaitonary credit contraction is underway (as we strongly believe to be the case as evidenced by, among other things, the industrial commodity silver), the USD is likely to benefit from a risk-aversion that will in due course harm stocks and other risk instruments in a serious way.



Freefalling - Fil Zucchi - 9:55 AM

The greenback continues its fall this morning. To the extent that the IMF chatter last week signaled a concerted effort by foreign countries to force a devaluation of the dollar (by no longer intervening to prop it up), I would not necessarily look for interest rates to jump sharply just because of the continued dollar fall. Where it might get scary is if the greenback starts freefalling faster and deeper than the central bankers want it to do. At that point we will find out how much power the Boom-Boom's of the world have to manipulate the biggest financial market on the planet.

Secondly, at some point a weaker dollar will inevitably be inflationary for the U.S. economy. It's at that point that interest rates might really freak out.



OK BIG BOYS, NOW YOU HAVE MY ATTENTION...... - Bennet Sedacca - 8:59 AM

My firm has been following the commercials (i.e. 'smart money') crowd in the COT data forever. There have been a few notable data points along the way. For example, right around the important top in the S&P in 2000, they got HEAVILY short the market for the first time, all the way down to about short 100,000 S&P contracts.

We have been tracking and talking here on the Buzz in the last few weeks their position in the long bond, and the fact that it has been increasing. Well, see this chart which shows the hedgers not only long but OBSCENELY LONG.

And these guys aren't called 'smart money' for nothing. So, our stance on bonds is still cautious, but that has been tempered over the past few weeks as prices have fallen. WE think much of the downmove is behind us, but we still won't ignore this data point.

So what to do? Well, we still have our cycle high this Friday, along with the Employment Index, and then the worst of seasonality until mid-late May. Now, for the important chart, see this chart here. This compares yields versus the hedgers positions. They have had a habit of buying at high yields and being flat or short at low yields (hence the phrase 'smart money'). Yes, Minyans, this may change our view and get our finger on the buy button a little quicker but there are many moving parts. But to ignore this, IMHO, may not be the right play.

Position in various Treasury securities



Third time's a charm? - Rod David - 8:03 AM

Thursday and Friday's highs chipped away at resistance to make higher highs likely. But after two consecutive sessions of failing to maintain new intraday highs, can an attempt Monday succeed? Thursday and Friday's failed attempts were still able to hold in positive territory, so the price action is considered to be "ineffectual bullishness." Unless Monday's open were to gap down under both sessions' lows, higher highs are likely - at least slightly higher highs, probably only momentary, and likely to suffer the same fate as the prior two sessions' rally attempts.

S&Ps are slightly higher overnight, making a lower open Monday unlikely. A lower open is already unlikely, since sellers weren't rewarded for attempting it in either of the two prior sessions. If sellers were to attempt it again, anyway, a third consecutive recovery would then be unlikely. But for now, the expectation is for a slightly higher high Monday morning, and for the higher high to fail in generating sponsorship among buyers. The potential is for this to finally energize sellers to produce a retest of Thursday morning's low, which is required by the pattern's opening gap down.


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