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Dead-Cat Bounce Over for the Housing Market?

Courtesy of Doug Short.

Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.


I have been saying this for a while: You can’t have a housing recovery unless actual home buyers are involved.

We are very far away from seeing the housing market reach its 2005 highs … and as time passes, it becomes clearer that this generation may never see them again.

How can I say that?

What we have seen in the housing market since then, but mostly since 2012, in my opinion, is nothing more than a dead-cat bounce scenario — an increase in prices after a massive decline. The chart below shows how far off we are from the housing prices of 2005.


Chart courtesy of www.StockCharts.com

One of the key indicators I follow in respect to the state of the housing market is mortgage originations. This data gives me an idea about demand for homes, as rising demand for mortgages means more people are buying homes. And as demand increases, prices should be increasing.

But the opposite is happening…

In the first quarter of 2014, mortgage originations at Citigroup Inc. (NYSE/C) declined 71% from the same period a year ago. The bank issued $5.2 billion in mortgages in the first quarter of 2014, compared to $8.3 billion in the previous quarter and $18.0 billion in the first quarter of 2013. (Source: Citigroup Inc. web site, last accessed April 14, 2014.)

Total mortgage origination volume at JPMorgan Chase & Co. (NYSE/JPM) declined by 68% in the first quarter of 2014 from the same period a year ago. At JPMorgan, in the first quarter of 2014, $17.0 billion worth of mortgages were issued, compared to $52.7 billion in the same period a year ago. (Source: JPMorgan Chase & Co. web site, last accessed April 14, 2014.)

I still see too much optimism around the housing market. Let me make this very clear: I don’t expect an outright collapse in home prices like the one we saw when the housing market bubble burst in 2007, but I do see the momentum slowing down in the housing market, and this may result in lower home prices.

The bottom line with the housing market is that its rebound over the past couple of years has been sustained by institutional investors who have…
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Gasoline Volume Sales, Demographics and our Changing Culture

Courtesy of Doug Short.

The Department of Energy’s Energy Information Administration (EIA) data on volume sales is over two months old when it released. The latest numbers, through mid-January, were published yesterday. However, despite the lag, this report offers an interesting perspective on fascinating aspects of the US economy. Gasoline prices and increases in fuel efficiency are important factors, but there are also some significant demographic and cultural dynamics in this data series.

Because the sales data are highly volatile with some obvious seasonality, I’ve added a 12-month moving average (MA) to give a clearer indication of the long-term trends. The latest 12-month MA is 8.4% below the all-time high set in August 2005, a new interim low.

The next chart includes an overlay of real monthly retail gasoline prices, all grades and formulations, adjusted for inflation using the Consumer Price Index. I’ve shortened the timeline to start with EIA price series, which dates from April 1993. The retail prices are updated weekly, so the price series is the more current of the two.

As we would expect, the rapid rise in gasoline prices in 2008 was accompanied by a significant drop in sales volume. With the official end of the recession in June 2009, sales reversed direction … slightly. The 12-month MA hit an interim high in November 2010, and then resumed contraction. The moving average for the latest month is about 8.0% below the pre-recession level and 4.9% off the November 2010 interim high. For some historical context, the latest data point is a level first achieved in May 1998.

Some of the shrinkage in sales can be attributed to more fuel-efficient cars. But that presumably would be minor over shorter time frames and would be offset to some extent by population growth. For some specifics on fuel efficiency, see the Eco-Driving Index for new vehicles developed by the University of Michigan Transportation Research Institute. However, if we look at Edmunds.com for data on the top 10 best-selling vehicles, energy efficiency doesn’t seem to be a key factor, to judge from the percentage of pickup trucks and…
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What Will December 31, 2014 Financial Headlines Look Like?

What Will December 31, 2014 Financial Headlines Look Like?

By Elliott Wave International

The financial forecasts around the end of 2013 brimmed with optimism. Here are just a few examples:

  1. Many scoff at notion stock bubble exists — Associated Press, Nov. 19, 2013
  2. Economy Entering New Year on a Roll — Bloomberg, Dec. 25, 2013
  3. 'We have entered a 15- to 20-year bull market' — CNBC, Dec. 30, 2013
  4. Economy poised for strong 2014 — Atlanta Journal-Constitution, Jan. 1, 2014
  5. Market Prediction: Bull will keep charging in 2014 — USA Today, Jan. 2, 2014
  6. Bull Market has Years Left Based on S&P 500 Valuations — Bloomberg, Jan. 6, 2014
  7. Economist tells Denver audience to be aggressive over next four years — Denver Post, Jan. 9, 2014

This super bullish outlook was also expressed just before the 2000 and 2007 market tops. Indeed, a chart from the April 2014 Elliott Wave Financial Forecast shows that investment pros are more bullish now than before the two prior major market peaks.

EWI's special report, The State of the U.S. Markets — 2014 Edition notes:

Investors are even more optimistic than economists. While the overall economy barely grinds ahead in first gear, indicators of Wall Street psychology stand at historic extremes of optimism. This optimism is the only thing holding up nominal stock prices.

Market history shows that extremes in psychology always reach a turning point. The Wave Principle can help you identify when the market's trend is about to change.

It is a thrilling experience to pinpoint a turn, and the Wave Principle is the only approach that can occasionally provide the opportunity to do so.

The ability to identify such junctures is remarkable enough, but the Wave Principle is the only method of analysis that also provides guidelines for forecasting

It is our practice to try to determine in advance where the next move will likely take the market.

Elliott Wave Principle: Key to Market Behavior, tenth edition, p. 96

Be aware that the Wave Principle has now identified what appears to be a history making…
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STTG Market Recap April 22, 2014

Courtesy of Blain.

We continue in this “V shaped” move off last week’s touch of the 200 day moving average on the NASDAQ.  The S&P 500 gained 0.41% and the NASDAQ 0.97%.  The indexes are nearing overbought near term so a day or two of rest would serve the bulls well to try to attempt a new leg higher.  In economic news existing home sales hit 4.59 million in March, versus a 4.55 million estimate.

In terms of the indexes the S&P 500 stalled at the trend line that connected the lows of summer 2013; some congestion lies ahead at year highs.

spx

The NASDAQ has come back from deeply oversold conditions as this index is heavy with biotech and momentum stocks.  The dotted blue line is the previous high; since early March we have not seen the NASDAQ make a new “higher high” which would be step one to a true reversal.  So watch that level closely.

nasdaq

In the healthcare space Allergan (AGN) – the maker of Botox and breast implants – jumped after Valeant Pharmaceuticals International proposed a merger.

agn

Gilead Sciences Inc (GILD) advanced 2.% in after hours after the drugmaker said its new $1,000 hepatitis C pill generated quarterly sales of $2.27 billion, helping the company’s quarterly net profit nearly triple.  This is one of the companies in the very hard hit biotech sector.

gild

The transportation sector hit a new high today which is a good sign….

tran

…stocks like United Airlines (UAL) led the charge.

ual

And we are seeing a return to momentum stocks such as Tesla Motors (TSLA).  If both momentum stocks and biotech stocks regain their mojo it would be bullish.

tsla





S&P 500 Snapshot: Rally Now at Day Six

Courtesy of Doug Short.

Asia-Pacific indexes had a mixed day with the Shanghai Composite up 0.44% Nikkei down 0.85%. European indexes fared better — the EURO STOXX 50 rising 1.39%. The S&P 500′s 0.41% gain didn’t match the European enthusiasm, but it extended its rally to six days, the longest since its 7-day advance in early September of last year. Year-to-date the index is up 1.69% and only 0.60% below its record close on April 2nd.

The yield on the 10-year note finished at 2.73%, unchanged for the three sessions and 13 bps off the 2014 low of 2.60%.

Here is a snapshot of the past five sessions.

Here is a daily chart of the SPY ETF with today’s volume highlighted. It remains quite light although a bit above yesterday’s thin participation.

Here is a longer perspective, starting with the all-time high prior to the Great Recession.

For a better sense of how these declines figure into a larger historical context, here’s a long-term view of secular bull and bear markets in the S&P Composite since 1871.





Weekly Gasoline Update: Premium Above $4.00

Courtesy of Doug Short.

It’s time again for my weekly gasoline update based on data from the Energy Information Administration (EIA). Rounded to the penny, Regular is up 3 cents and Premium four, the eleventh week of increases. Regular is up 49 cents and Premium 46 cents from their interim lows during the second week of November. The average for Premium at 4.01 has breached the four dollar benchmark for the first time since March of last year.

According to GasBuddy.com, California and Hawaii remain the only states with regular above $4.00 per gallon, with Hawaii now at $4.30 and California at 4.21. Montana has the cheapest regular at $3.33, up five cents from last week.

How far are we from the interim high prices of 2011 and the all-time highs of 2008? Here’s a visual answer.

The next chart is a weekly chart overlay of West Texas Intermediate Crude, Brent Crude and unleaded gasoline end-of-day spot prices (GASO). WTIC closed today at 104.35, up from 103.58 this time last week.

The volatility in crude oil and gasoline prices has been clearly reflected in recent years in both the Consumer Price Index (CPI) and Personal Consumption Expenditures (PCE). For additional perspective on how energy prices are factored into the CPI, see What Inflation Means to You: Inside the Consumer Price Index.

The chart below offers a comparison of the broader aggregate category of energy inflation since 2000, based on categories within Consumer Price Index (commentary here).

Here are some additional commentaries related to gasoline prices:





The End of the Gold Standard

Courtesy of Doug Short.

Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.


It was 100 years ago, in 1914, that the Gold Standard died. When World War I began, most countries went off the Gold Standard and attempts to return to a Gold Standard since have all failed. Some people have called for a return to the Gold Standard as a way of disciplining governments and ensuring that they do not inflate their way out of their current fiscal problems. If it were only that easy.

What many people don’t understand is that in the long run, the International Gold Standard was a very brief phenomenon, and the fact that the world moved to a Gold Standard in the late 1800s was a sign of weakness in the role of gold and silver in the economy, not of strength. The reality was that Europe was on a bimetallic standard, not a Gold Standard, from the Middle Ages until World War I, and gold triumphed in the nineteenth century because bimetallism had failed. This should have been taken as a sign that the gold standard too would inevitably fail, not that it was the result of teleological inevitability.

The first gold and silver coins were issued by Croesus in Lydia around 600 BC. Before that, both gold and silver were used as a store of for wealth, for conspicuous consumption, or to value other goods, but no coins existed. The value of gold relative to silver, the gold/silver ratio, changed over time. In 2700 BC it was around 9 to 1; under Hammurabi in 1800 BC it was 6 to 1; and by the time Croesus issued the first gold and silver coins, rather than electrum coins, it was 12 to 1.

The gold/silver ratio remained around 12 to 1 for the next 2500 years, though it could range as low as 9 to 1 or as high as 16 to 1. Athens built its empire on the silver mines of Laurium; Alexander the Great plundered the treasuries of the Persians; and the Romans seized this stolen bullion when they conquered the Mediterranean. Constantine took the gold of the Pagan temples for his needs, and whoever controlled Egypt could rely upon the mines in Nubia as a source of gold. When the Arabs spread Islam through the world,…
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CFNAI: Q1 Weakness Not Just A "Weather Report"

Courtesy of Doug Short.

Note from dshort: The CFNAI is one of my favorite monthly economic snapshots, for which I provide an quick overview shortly after its released and a drill-down on the four major subcomponents a few hours later. Today Lance Roberts offers a deeper perspective on this indicator.


There has been much “hope” by mainstream economists that the slowdown in economic growth in the first quarter of this year was simply due to the blast of inclement weather that shuttered production in much of the North East. While the “weather story” most certainly had a negative impact on economic growth in the short term, there is not much evidence that an economic revival is in the offing.

I have written several times in the past about the most overlooked economic indicator – the Chicago Fed National Activity Index (CFNAI). This index is a broad composite of 85 subcomponents that provide a broad overview of activity in the domestic economy from consumption to production. The most recent release of the CFNAI for March showed a rather steep decline in national activity to .20 from .53 in February. That decline was driven by a steep fall in Sales, Orders and Inventories from .08 in February to a negative .02, and a decline in Production and Incomes from .54 to .21 in March. The drop in these two specific indices does not bode well for continued increases in areas such as employment, hours and personal consumption which are primarily lagging indicators relative to actual activity.

The “hope” of economic revival is not new. It has been the repeated mantra by mainstream economists and the Federal Reserve since the end of the financial crisis. However, as shown in the chart below, each economic bounce due to an inventory restocking cycle has been short lived with economic growth languishing at sub-par rates.

As I said above, the cold winter blasts of snow and ice that shuttered in much of the North East during the beginning of 2014 certainly had a short-term negative impact on economic growth. Therefore, it is not surprising that we have seen an uptick in activity in recent economic reports as companies once again restock inventories and some…
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The Four Totally Bad Bears: New Update

Courtesy of Doug Short.

Note from dshort: At the request of The Advisory Group in San Francisco, here’s updated comparison of four major cyclical bear markets. The numbers are through April 21st close.


This chart series features an overlay of the Four Bad Bears in U.S. history since the market peak in 1929. They are:

  1. The Crash of 1929, which eventually ushered in the Great Depression,
  2. The Oil Embargo of 1973, which was followed by a vicious bout of stagflation,
  3. The 2000 Tech Bubble bust and,
  4. The Financial Crisis following the nominal all-time high in 2007.

The series includes four versions of the overlay: nominal, real (inflation-adjusted), total-return with dividends reinvested, and real total-return.

The first chart shows the price, excluding dividends for these four historic declines and their aftermath. As of today’s close are now 1643 market days from the 2007 peak in the S&P 500.

Inflation-Adjusted Performance

Nominal Total Returns

Now let’s look at a total return comparison with dividends reinvested. Our current post-Financial Crisis market is the top performer, up 37.8% from the 2007 peak with the post-Oil Embargo rally in distant second place, but also in the green.

Real (Inflation-Adjusted) Total Returns

When we adjust total returns for inflation, the picture significantly changes. The spread between three of the four markets narrows, and the current real total return has pulled far ahead of the post-Oil Embargo rally.

Here is a table showing the relative performance of these four cycles at the equivalent point in time.

For a better sense of how these cycles figure into a larger historical context, here’s a long-term view of secular bull and bear markets, adjusted for inflation, in the S&P Composite since 1871.

These charts are not intended as a forecast but rather as…
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Richmond Fed Manufacturing Composite: Major Bounce from Last Month

Courtesy of Doug Short.

As a resident of the Fifth District, this is a regional manufacturing index I pay close attention to. The Fifth District includes Virginia, Maryland, the Carolinas, the District of Columbia and most of West Virginia. The Federal Reserve Bank of Richmond is the region’s connection to the nation’s Central Bank.

The complete data series behind the latest Richmond Fed manufacturing report (available here) dates from November 1993. The chart below illustrates the 21st century behavior of the diffusion index that summarizes the individual components.

The April update shows the manufacturing composite at 7, a major bounce from last month’s -7. Today’s composite number was above the Investing.com forecast of 0.

Because of the highly volatile nature of this index, I like to include a 3-month moving average, now at -2.0, to facilitate the identification of trends.

Here is a snapshot of the complete Richmond Fed Manufacturing Composite series.

Here is the latest Richmond Fed manufacturing overview.

Fifth District manufacturing activity improved in April, according to the most recent survey by the Federal Reserve Bank of Richmond. Shipments and the volume of new orders increased. Employment rose, while wages advanced at a slower rate. The average workweek was unchanged from a month ago.

Manufacturers looked for stronger business conditions during the next six months, although expectations were below last month’s outlook. Compared to last month’s outlook, survey participants anticipated somewhat slower growth in shipments, new orders, and capacity utilization. Manufacturers also looked for slower growth in employment and wages. In addition, expectations were for little change in the average workweek. They predicted vendor lead times would edge up at about the same pace as March’s outlook.

Current prices of raw materials and finished goods rose at a slower pace in April compared to last month. Manufacturers expected faster growth in prices paid and prices received over the next six months, although their outlook was below last month’s predictions.

Here is a somewhat closer look at the index since the turn of the century.


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Zero Hedge

Nasdaq Winning Streak Snaps As Yield Curve Hits Fresh 5-Year Lows

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

It seems yesterday's decoupling (stocks up, and everything else risk-off) has unwound today as equity markets were broadly weaker. The Dow and S&P traded in a very narrow range on the day closing slightly negative and breaking the 6-day winning streak. Nasdaq and Russell underperformed notably as "most shorted" stocks appeared to gain some momentum to the downside once again (ahead of tonight's AAPL/FB results) as high-beta caught down to low-beta today. Away from the oddly decoupled equity markets, Gold, silver and copper all closed unch to modestly higher as WTI crude prces dropped further (to $101.50). The USD rallied off European open weakness to end u...



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Hoisington Investment Management Quarterly Review and Outlook

Outside the Box: Hoisington Investment Management Quarterly Review and Outlook, First Quarter 2014

By John Mauldin

In today’s Outside the Box, Lacy Hunt and Van Hoisington of Hoisington Investment have the temerity to point out that since the Great Recession officially ended in 2009, the Federal Open Market Committee (FOMC) has been consistently overoptimistic in its projections of US growth. They simply expected QE to be more stimulative than it has been, to the tune of about 6% over the past four years – a total of about $1 trillion that never materialized.

Given that dismal track record, our authors ask why we should believe the Fed’s prediction of 2.9% real GDP growth for 2014 and 3.4% for 2015 – particularly with QE being tapered into nonexistence. ...



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All About Trends

Mid-Day Update

Reminder: David is available to chat with Members, comments are found below each post.

Click here for the full report.




To learn more, sign up for David's free newsletter and receive the free report from All About Trends - "How To Outperform 90% Of Wall Street With Just $500 A Week." Tell David PSW sent you. - Ilene...

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Chart School

Dead-Cat Bounce Over for the Housing Market?

Courtesy of Doug Short.

Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.

I have been saying this for a while: You can't have a housing recovery unless actual home buyers are involved.

We are very far away from seeing the housing market reach its 2005 highs ... and as time passes, it becomes clearer that this generation may never see them again.

How can I say that?

What we have seen in the housing market since then, but mostly since 2012, in my opinion, is nothing more than a dead-cat bounce scenario -- an increase in prices after a massive decline. The chart below shows how far off we are from the housing prices of 2005.


Chart courtesy of www.StockCharts.com

One of the key indicators I follow in ...



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Market Shadows

Soy Numero Uno

Soy Numero Uno

By Paul Price of Market Shadows

Bunge Limited (BG) is the world’s largest processor of soybeans. It is also a major producer of vegetable oils, fertilizer, sugar and bioenergy.

When commodities got hot in 2007-08, Bunge’s EPS shot up and the stock followed, rising 185% in 19 months.

The Great Recession took its toll on operations, dropping EPS to a low of $2.22 in 2009.  Since then profits have recovered.  They ranged from $4.62 - $5.90 in the latest three years. 2014 appears poised for a large increase. Consensus views from multiple sources see BG earning $7.04 - $7.10 this year and then $7.83 - $7.94 in 2015.

...



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Option Review

Casino Stocks LVS, WYNN On The Run Ahead of Earnings

Shares in Las Vegas Sands Corp. (Ticker: LVS) are up sharply today, gaining as much as 5.7% to touch $80.12 and the highest level since April 4th, mirroring gains in shares of resort casino operator Wynn Resorts Ltd. (Ticker: WYNN). The move in Wynn shares appears, at least in part, to follow a big increase in target price from analysts at CLSA who upped their target on the ‘buy’ rated stock to $350 from $250 a share. CLSA also has a ‘buy’ rating on Las Vegas Sands with a $100 price target according to a note from reporter, Janet Freund, on Bloomberg. Both companies are scheduled to report first-quarter earnings after the closing bell on Thursday.

...

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Sabrient

What the Market Wants: Market Poised to Head Higher: 3 Stocks to Consider

Reminder: Sabrient is available to chat with Members, comments are found below each post.

Courtesy of David Brown, Sabrient Systems and Gradient Analytics

Yesterday, the market continued its winning ways for the fifth consecutive day.  The S&P 500 closed within 1% of its all-time high, and the DJI was even closer to its all-time high.  Healthcare, Energy and Technology led the sectors while Financials, Telecom, and Utilities finished slightly in the red.  All three sectors in the red are typically flight-to-safety stocks, so despite lower than average volume, the market appears poised to make new highs.

Mid-cap Growth led the style/caps last week, up 2.87%, and Small-cap Growth trailed, up 2.22%. This week will bring well over 100 S&P 500 stocks reporting their March quarter earn...



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OpTrader

Swing trading portfolio - Week of April 21st, 2014

Reminder: OpTrader is available to chat with Members, comments are found below each post.

This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here...



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Stock World Weekly

Stock World Weekly

Newsletter writers are available to chat with Members regarding topics presented in SWW, comments are found below each post.

Here's this week's Stock World Weekly. Click here and sign in with your PSW user name and password, or sign up for a free trial.

...

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Digital Currencies

Facebook Takes Life Seriously and Moves To Create Its Own Virtual Currency, Increases UltraCoin Valuation Significantly

Courtesy of ZeroHedge. View original post here.

Submitted by Reggie Middleton.

The Financial Times reports:

[Facebook] The social network is only weeks away from obtaining regulatory approval in Ireland for a service that would allow its users to store money on Facebook and use it to pay and exchange money with others, according to several people involved in the process. 

The authorisation from Ireland’s central bank to become an “e-money” institution would allow ...



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Promotions

See Live Demo Of This Google-Like Trade Algorithm

I just wanted to be sure you saw this.  There’s a ‘live’ training webinar this Thursday, March 27th at Noon or 9:00 pm ET.

If GOOGLE, the NSA, and Steve Jobs all got together in a room with the task of building a tremendously accurate trading algorithm… it wouldn’t just be any ordinary system… it’d be the greatest trading algorithm in the world.

Well, I hate to break it to you though… they never got around to building it, but my friends at Market Tamer did.

Follow this link to register for their training webinar where they’ll demonstrate the tested and proven Algorithm powered by the same technological principles that have made GOOGLE the #1 search engine on the planet!

And get this…had you done nothing b...



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Pharmboy

Here We Go Again - Pharma & Biotechs 2014

Reminder: Pharmboy is available to chat with Members, comments are found below each post.

Ladies and Gentlemen, hobos and tramps,
Cross-eyed mosquitoes, and Bow-legged ants,
I come before you, To stand behind you,
To tell you something, I know nothing about.

And so the circus begins in Union Square, San Francisco for this weeks JP Morgan Healthcare Conference.  Will the momentum from 2013, which carried the S&P Spider Biotech ETF to all time highs, carry on in 2014?  The Biotech ETF beat the S&P by better than 3 points.

As I noted in my previous post, Biotechs Galore - IPOs and More, biotechs were rushing to IPOs so that venture capitalists could unwind their holdings (funds are usually 5-7 years), as well as take advantage of the opportune moment...



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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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Ilene is editor and affiliate program coordinator for PSW. She manages the site market shadows, archives, more. Contact Ilene to learn about our affiliate and content sharing programs.

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