Stem Cell Stocks And The Election

• November 1, 2004
• Peter Navarro

The Big Picture Investor: Market Babble-lon

Navarro’s Broad Market Outlook: Expert Gas

            There are a lot of
gaseous reasons being offered at to why the market rallied this week —
fundamentals like a bit softer oil prices and technicals like time to bounce off
some doldrums.  But truth be told, it’s anyone’s guess.  Translated into
probabilistic terms, that means it continues to be a reckless gambler’s casino,
rather than careful speculator’s market.  With a few exceptions noted below in
my stock picks, that means that a heavy weight towards cash is a prudent
positioning.

            In the meantime, I
strongly suggest that anybody who wants to understand the challenges facing this
market check out the article “Wanted: A Pre-emptive Strategy”  (www.peternavarro.com,
click on microwave university link).  It’s an excellent take on a slow motion
train wreck involving the dollar, the trade deficit, and China.

            Last take:
The presidential election should help clear a bit of the market air.  If I had
to bet money, my guess it’s going to be Kerry.  He continues to pick up
momentum, the undecided voters usually break towards the challenger, and Bush
has had some bad luck press going in to Tuesday, e.g., the weapons depot
scandal, the Halliburton investigation.  But I would no more bet on this outcome
than I would the market trend right now. 

Aloyan’s Technical Take: A Market of Emotions!

For
the week, all three major indices finished in the green:  the Dow closed up 270
points (2.76%) at 10027, the S&P 500 was up 34 points (3.14%) at 1130, and the
Nasadq closed up 60 points (3.13%) at 1975.  The S&P 500 and the Nasdaq
Composite, are once again, right back up to their 2004 downtrend resistance
lines with the “Dow” straggling behind. 

Both
the “Dow” and the S&P 500 had an “outside reversal week” up, although on lighter
volume.  This would ordinarily be a “bullish” indicator of things to come,
however, the lower volume makes it suspect.  On the flip side, the Nasdaq has
had back-to-back up weeks on increasing volume, showing a renewed interest in
“tech.”  Overall up volume has been outweighing declining volume, for the S&P
500 and the Nasdaq Composite, from the August ’04 rally leading up to their
current down resistance lines, thus confirming the upward price move. 

My
momentum indicators have turned short-term positive for the S&P 500, the Nasdaq
Composite, and the “Dow.”  Last week’s sector breadth reading was 93% on the
upside, with the Utilities and Transportation sectors making new highs on
increasing volume.  We now enter the seasonally best time of the year for market
performance, backed by an election year.  On the cautious side, all three
indices remain in a downward trending channel for 2004, my breadth indicators
are showing some negative divergences from the upward price action, we are in
“overbought” territory, and overall volume declined the past couple of days on
the upward price movement (probably due to pre-election wait-and-see
attitudes).  Further, my sentiment and economic indicators remain bearish.

Bottom line:  We have been here before,
and have failed.  There is much uncertainty out there, and not many positive
catalysts.  Poor underlying economic data and company fundamentals have not
moved investors away from stocks; their sentiment seems to be weighing on the
outcome of the presidential election.  This has been a market of emotions, not
logic!  Therefore, this is the biggest week of the year for the markets as far
the investor is concerned, and it will be pivotal–Stay tuned!

^next^

Peter’s Picks: Action for the Week

            I closed out my
position in STEM and took profits in advance of the election (stem cells stocks
will fall if Kerry and/or California Prop 73 lose(s)) and because the
bubbleheads at CNBC started talking about the stock.  May reload on STEM after
election day if it is indeed Kerry.  I also cut in half my position in ASTM,
another stem cell play, because of a stock offering that came in at $1.21 and
brought my high-flier a little back to earth — where it is now pegged by the
stock offering.

            My 2006 10
Northwest call options are behaving very nicely, with the softening of oil
prices pushing NWAC up.  Same can’t be said for my 2006 15 WMB call options but
Williams is scheduled to come out with earnings on Thursday of this week, and
that will be very interesting as, at least thus far, WMB is one of the few
energy companies that have failed to ignite with the runup in oil and gas
prices.  (The technicals do look VERY good.)

I cut
my hefty position in half in XYBR, the portable computer gearmaker, when the
stock lurched down unexpectedly.  However, I reloaded 60% of that after the CEO
came out with an early pre-earnings announcement saying everything was ducky. 
Can’t help myself — I like the business model even though XYBR is one of the
favorite punching bags of the Motley Fool.  (But what the heck do those idiots
know?)

David’s Pick: “CASH”

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DISCLAIMER: This newsletter is written for
educational purposes only.  By no means do any of its contents recommend,
advocate or urge the buying, selling, or holding of any financial instrument
whatsoever.  Trading and investing involves high levels of risk.  The authors
express personal opinions and will not assume any responsibility whatsoever for
the actions of the reader.  The authors may or may not have positions in the
financial instruments discussed in this newsletter.  Future results can be
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