Is there a Bullish case lurking out there that we're not recognizing?

Came across this article last night regarding the Arms Index reaching an extreme:

ARMS Index at 13.22.

ARMs Index explained

Arms said:


"The value for the day on Friday was extremely high. According to the Wall Street
Journal it was 13.22. They used the following components:Advances 315, Declines
2839, Advancing volume 13,602,600, Declining volume1,621,066,016.I have gone with
this since the numbers I got from other sources were obviously completely erroneous.
Sometimes, as in 1987 particularly, there is a lot of confusion.But watching the numbers
during the day on Friday, I think the WSJ must be close.

That makes this the fourth highest reading in at least the last seventy years, which is as
far as I can go back. On the chart above I have shown the daily readings going back to
1987, with the horizontal blue line at 10.00 for reference.You will observe that the
extremes such as we saw on Friday seem to come in at bottoms.They represent a sudden
rush for the exits, such that the declining stocks are receiving ten or so times as much
volume as the up stocks.In other words, the crowd mentality has taken over and stocks
are being indiscriminately dumped.It is a sign of fear and panic, and appears, in most
cases, to be misplaced fear, at least on the short to intermediate term."


So.. Does that mean we're putting in a short term bottom with a rally towards this year's previous highs, thereby forming the "right shoulder" on H&S many have been seeing being formed, or could it lead to even higher highs, suggesting we're in a new Bull Market?

I don't know. As stated in previous posts, I remain overall bearish given M3 and that 10 years "Mother of all H&S" formations I've been seeing. But the reality is that if I can see it, then the Fed and Treasury can see the same thing and might be trying to orchestrate a global effort to break the technical "waterfall" that occurs when those right shoulders collapse below the neckline price.

DOW H&S formation.

We remain in an inflection point in the markets, with a currently bearish bias. But that doesn't mean the rallies can't come fast and sharp back up to critical resistance points. It will be interesting to see how much of that resistance can be overcome.

Which brings to "positive event risk" (for the bears). What lurks out there that could dramatically reverse this market to the upside?

The primary event that might make me turn bullish again, would be firm regulation and control over Credit Default Swaps, which are destroying the Capital markets.

Secondly, would be a concerted jobs program to spur re-hiring in the PRIVATE SECTOR (not public). We need to rebuild the demand curve in this economy and that can only come if we have more private workers than we have public ones. Because extended unemployment benefits are nothing more than a fancy term for Welfare, it would have made more sense subsidizing small business to retain, retrain, and hire workers, if only to avoid people losing job skills.

Certainly Europe stabilizing would be nice.. but I'm not counting on it.

That's about all I can perceive that would change my mind outside of the return of the Messiah.. ;0)

Scrutinizer

M3 has gone negative in a BIG way.

M3 is a measure of money supply. The Fed claims they no longer track M3, but many other fundamental analysts and economists still do. Here's a Wiki link to help explain it:

Wiki page on M3 and Money Supply

M3 has gone negative this past year. The last time it did that was during the Great Depression Kind of frightening, isn't it?

M3 historical chart

The Fed can foolishly attempt to persuade us that M3 doesn't matter.. But to those who track it, it apparently does.

Russell 2000 (RUT) breaks 50 Week MA.

Mr. Bernanke says we're not going into a "double-dip" recession. I would beg to differ if the charts can be believed.

First off, let me review Parabolic SARs. Simply put, SAR means "Stop and Reverse". When the price of the equity/index penetrates one of these SARs, they "flip" either upward or downward. Flipping an SAR upward means the "dotted line" falls to the last major support level and then starts trending upward. When an equity is declining and penetrates an SAR, the "dotted line" flips up to the last high, which now becomes resistance.

Generally speaking, flipping an SAR upward generates short covering and buying. Consequently, when an SAR flips downward, it generates selling. The longer the time period used in the chart, the stronger the signal.

RUSSELL 2000 Breakdown

The Russell 2000 suffered a major breakdown today. It's last major point of support was the 50 Week Moving Average (MA) and it failed to hold:

RUT Weekly Chart

Additionally, the inverse 3x Bear ETF on the Russell (TZA) also "flipped" it's Daily SAR to an upward bias.

TZA Daily Chart

As some might recall, the TZA "flipped" it's weekly SAR a few weeks back when the RUT crossed under it's 200 WEEK MA, which indicated the index was in distribution.   Flipping the TZA Daily SAR was the last bit of resistance (support?) to halting a sell off in the RUT to it's next level of support, found in the Monthly RUT chart:

RUT Monthly chart

The RUT is in serious trouble. The Monthly chart above suggests that the next level of support for the RUT is 581 which is the lower arm of the Monthly Bollinger Band. However, I believe the ultimate target is a test of the Monthly SAR, which is currently located at 487.

If that occurs, then TZA, being a 3x Ultra-Bear ETF on the RUT, could stand to appreciate considerably during this retreat in the RUT to that Monthly support line.

It's been my theory that the Small Cap indices, such as the RUT, would become a source of funds for supporting the S&P 500 and DOW 30. I think we're starting to see this come to fruition.

We can see by the "flipping" of the TZA Daily SAR, that the next point of resistance is TZA's 200 day MA (which, btw, is substantially different than the RUT's 200 Day MA, which was penetrated to the downside a few days ago. To properly reflect it's position as an inverse ETF to the Russell, both should cross their 200 Day MAs at the same time. But this hasn't happened for some time. Possibly RUT longs have been shorting TZA as an arbitrage, thereby skewing the equilibrium between the index and it's inverse ETF.

This suggests that TZA has substantial upside as it attempts to equalize to it's inverse index.

Scrutinizer

BP Billion Dollar engineering at work:

Can ANYONE tell me what's wrong with this picture? :

Live feed from BP valve 5,000 feet down on that well head

Anyone notice the Duck Tape?

Scrutinizer

SPX and RUT to retest previous lows:   Will they hold, or is there more downside to come?

Turmoil in the Euro, which closed below 1.20 to the USD for the first time in 4 years.  Hungary suggesting that debt default is not out beyond exaggeration.  Continuing tensions on the Korean Peninsula.  AND, OF COURSE, the lousy jobs report where only 20,000 private sector jobs were created in May..   The list goes on for reasons to sell this market.

I ran the Hourly chart on both the S&P 500 (SPX) and the Russell 2000 (RUT) and discovered that the 30 Hour Moving Average (MA) has crossed under the 50 Hour MA.   The previous two instances where this occurred resulted in nearly 100 point losses on both indices before they bottomed.

SPX Hourly chart:

RUT Hourly Chart:

Follow the yellow line (30 Hour MA) as it crosses below the 50 Hour MA (blue line).

Very frightening, eh?

But it's possible that we may see a relief rally that takes us back up to that 30 Hour MA. That would likely be the time to sell or short, and look for a bottom. For the RUT, that short-term bottom may occur at RUT 570.

Scrutinizer

Bilderbergers throwing a Euro "Bash"??

It seems the Illuminati (err.. Bilderbergers.. ;0) are throwing their annual bash near Barcelona this year (love that city!)

http://www.timesonline.co.uk/tol/news/world/europe/article7142478.ece

Can they save the Euro?   Or are they actually behind it's demise?

I wonder how many of them are holding Credit Default Swaps on European debt, hoping the whole lot defaults and transfers considerable wealth into their coffers.

I always find it a bit humorous to read all the conspiracy theories about the Bilderbergers, Trilateral Commission, and CFR.   I'm sure that these guys probably like to think they have some control over the "New World Order", but I'm sure trying to control human beings is tantamount to herding cats.

 And I've no doubt that various groups are always plotting and scheming to impose their will (or profit from turmoil).   But they've got a lot of competition from the Arabs, the Chinese, and of course, the Hedge Funds.

For every conspiracy there's a counter-conspiracy, IMO.

Scrutinizer

SPX Monthly SAR "Flips".. Bearish signal?

The SPX Parabolic SAR has flipped downward.   Previous instances where this has occurred has provided a strong signal of an significant decline in prices.   The last time this occurred was in 2008.

Currently the Monthly PSAR is located at 1220, which coincides with the 50 Month Moving Average.   That may provide a powerful obstruction to higher prices and signal distribution.

HOWEVER, this doesn't mean that the index won't make an attempt to bust through 1220.   Should it do so, the PSAR will flip upward, at around the 200 Month MA.

One thing is clear, the SPX needs to maintain the 200 Month MA, or it's going to get VERY interesting.

And here's a bonus chart.. AAPL is knocking it's head on its Weekly PSAR. It truly needs to "flip" this if it's going to achieve new highs. Currently that "flip" point appears to be $267/share.

Also note that once they do manage to flip these SARs, we'll often see a period of consolidation to the middle of the Bollinger Band channel (the black dotted line).

Recall from a previous post that I'm watching AAPL very closely because it's the now the largest Nasdaq stock out there, having surpassed MSFT in market cap.   MSFT was the darling of the markets in 2000 and when it's stock declined, it signaled the end of the Internet Bubble, which also formed the left shoulder of this 10 year Head and Shoulders formation we've been putting in place.   So now I opine that AAPL represents the one stock that will indicate when the right shoulder of that Head and Shoulders has been put in place.   No new high and we could quickly see a sell-off to far lower prices.

Phytoplankton Declines and Rising CO2 levels: the missing link?

For a long time I've been a skeptic with regard to the effects of CO2 on our climate. CO2 levels have been higher and lower throughout Earth's history, long before mankind ever emerged as a parasite on the back of "mother earth":

500 million CO2 record

CO2 record for the past 400,000 years

Throughout those millions of years, nature has dealt with those excessive CO2 emissions that have emanated from various natural sources. Botanical life adapted to consume it until a form of equilibrium was established according to available resources. This floral bio-remediation took the form of both terrestrial plants, as well as oceanic plant life in the form of single celled phytoplankton that form the foundation of the marine food chain along with sequestering over 50% of all atmospheric CO2.

We been bombarded with warnings from folks like Al Gore, Tom Friedman, and so many others, all trying to convince us that our hydrocarbon emissions have increased CO2 levels to the point where we're on a unstoppable cycle of global warming (or is it climate change now?). It's claimed that CO2 levels are up to 30% above the known cyclical highs from previous warming periods and that ONLY man-made CO2 emissions can be responsible for that increase.

But could there be another reason that atmospheric CO2 levels have increased? Could it have something to do with the fact that phytoplankon levels have declined 20-30% over the past 30 years??

Isn't just a bit coincidental that CO2 levels have risen at a level that corresponds to observed phytoplankton declines?

If the ability of the oceans to absorb CO2 diminishes by 20%, does it not make sense that atmospheric CO2 levels would rise by the same level?

This, of course, assumes that all the necessary nutrients exist to permit phytoplankton to flourish. Anyone with a green thumb knows that it requires the proper balance of nutrients, temperature, and solar exposure, to make a garden grow. If any of these elements are lacking, plant growth is inhibited.

Many scientists have noted this decline, but have attempted to blame it on increased ocean temperatures, although I'm not sure the science upholds their theories.

Phytoplankton declines of up to 30% in several oceans

Decline in phytoplankton due to warming oceans?

Historical Decline in Phytoplankton coincided with Global COOLING.

Now.. one of the elements that's critical to ALL plant life is Iron. Without it, plants can't produce chlorophyll. Without chlorophyll, plants cannot absorb CO2, or conduct photosynthesis, by which they produce both their food and oxygen. Iron deficiency results in a condition known as Chlorosis:

Chlorosis

In numerous areas of the planet's oceans are "dead spots". Despite being rich in nutrients, they do no sustain significant quantities of phytoplankton. Dr. John Martin proposed during the 1990's that the addition of a small quantity of iron in High Nutrient, Low Chlorophyll (HNLC) areas of the ocean would produce large blooms of phytoplankton and sequester tons of CO2. In fact, the very fact that these areas ARE HNLC, but not producing phytoplankton, seems the most damning evidence against blaming warming oceans being the cause of phytoplankton declines.

John Martin and the Iron Hypothesis

Pros and Cons of Iron Fertilization

Given sufficient nutrients, there should be no limit to how much CO2 can be sequestered by botanical life forms. Plants will grow until they lack a vital element they require to sustain that growth. But since Iron is a rare element in our oceans, blown there as eroded dust from terrestrial winds, it's the one factor that limits the growth of phytoplankton.

And I'll admit that it's possible that anthropogenic emissions of CO2 from the burning of hydrocarbons has depleted oceanic deposits of Iron. But that only suggests that we have a responsibility to replenish that iron, if only because phytoplankton are also the foundation of the marine food chain. Every marine life form depend upon phytoplankton, directly or indirectly.

John Martin died many years ago, but his theories still live on. Various scientific expeditions have been launched to prove his theories, but have generated tremendous opposition from other scientists who reject the idea of "geo-engineering".

Yet.. we need Carbon Credits to "resolve" the alleged problem of "Climate Change"? We need to tax people, granting permission for them to emit a natural substance, CO2, which nature using as a vital element in the growth of botanical life on this planet?

This is crazy.. And it's dangerous because it leads us into Malthusian style thinking and population control. It's ultimately about the elite, who can afford to buy into the carbon credit scheme, controlling the masses, who cannot.

I'm just as much a conservationist as your average person.. But I'm not so stupid as to actually believe that CO2 is a "pollutant" as the EPA would like to have us believe. Too much of ANYTHING is bad. Too much oxygen would be just as bad for the existing ecosystem as too much CO2. But nature has experienced numerous periods where there was too much CO2 and plant life restored the equilibrium over time, as nutrients became available.

Scrutinizer

Conspiracy Corner: Goldman Sachs, Carbon Credits, and the BP oil spill.

Ok.. I'm not generally one who is given to conspiracy theories, but I've found one that's has, even me, saying "WTF!!".

We all know how this BP oil spill on the southern coast has proven to be extremely difficult to contain. Failure after failure has been the result and now this final attempt to cut the well-head pipe has resulted in the saw getting stuck.

The environmental fallout is seen as a catastrophe that rivals Katrina in it's potential for devastating the fishing industry and sullying any number of gulf coast beaches. In an attempt to contain the spreading oil slick, they have sprayed dispersing chemicals (very toxic in their own right), and attempted to use booms and skimmers to contain and collect the slick.

But there is a conspiracy theory that is starting to go viral regarding the entire event. I'm not going to suggest that I subscribe to this theory, but it raises questions that deserve to be answered.

Let me start here.. A report that Goldman Sachs sold over 4 million shares of British Petroleum in the 1st quarter of this year:

According to regulatory filings, RawStory.com has found that Goldman Sachs sold 4,680,822 shares of BP in the first quarter of 2010. Goldman's sales were the largest of any firm during that time. Goldman would have pocketed slightly more than $266 million if their holdings were sold at the average price of BP's stock during the quarter.

If Goldman had sold these shares today, their investment would have lost 36 percent its value, or $96 million. The share sales represented 44 percent of Goldman's holdings -- meaning that Goldman's remaining holdings have still lost tens of millions in value.

Goldman Sachs big oil "spill"

How convenient!! How fortuitous for the company that had 100 STRAIGHT DAYS of trading profits (which means, for 100 days, anyone that traded against them lost). How fortuitous for a company that's banking serious cash using High Frequency Trading (recall that, reportedly, these HFT systems were turned off during the "Flash Crash" that led to a 1000 point drop in the DOW.

GS, the "Vampire Squid"?

According to a SEC filing released earlier today, Goldman Sach Group Inc.'s traders made a total of $9.74 BILLION in net revenues in Q1/2010. This number works out to a total of 76% of the company's first quarter revenues.

An even more incredible number - of the 63 trading days in Q1/2010, the traders at Goldman Sachs did not have even ONE losing day.

That's right - Goldman Sachs hit .1000 in the first quarter. This stunning result doesn't exactly help the firm remove the perception that the markets are rigged by and for Goldman Sachs.

Of the 63 trading days in Q1, Goldman Sachs reported profits of over $100 million in 35 of them. So, the traders at Goldman Sachs managed to rake in over $100 million for the firm in over half of the days in Q1/2010.

The Gold Sach Profit Machine.

Not a single losing day for GS in 1st Quarter 2010.

Ok.. so now we see the foundation of the the financial conspiracy. GS sells BP.. BP has a terrible accident that STILL DEFIES EXPLANATION, and now we find out it may be August before the spill is contained. It's a disaster!! A catastrophe!! It's ruining Obama's opinion poll numbers!!

Heck, even Thomas Friedman, is becoming hysterical, sitting in his energy gulping, Bethesda, MD mansion, declaring that the BP oil spill is Obama's "9/11":

No, the gulf oil spill is not Obama’s Katrina. It’s his 9/11 — and it is disappointing to see him making the same mistake George W. Bush made with his 9/11. Sept. 11, 2001, was one of those rare seismic events that create the possibility to energize the country to do something really important and lasting that is too hard to do in normal times."

BP disaster is Obama's 9/11.

Now what kind of "Lemonade" could Obama possibly make from this box of sour citrus?

How about shutting down all offshore drilling in the Gulf, a major political issue for the more environmentally minded liberals?

How about getting that darn "Cap & Trade" legislation passed? This BP event has the potential for re-instilling some serious "mojo" into the Carbon Tax concept re-energizing the idea that we need a Carbon tax to force us to use alternatives to hydrocarbons

Goldman Sachs is a founding member of the "Green Exchange"

Big Money to be made in trading Carbon Credits!! And with their demonstrated expertise in going for an entire quarter without a loss suggests they want to rig the Carbon markets too!!

Now.. did you listen to Obama's speech this afternoon? It was vehemently political, blaming Republicans for obstructing all manner of policy initiatives put forth by Obama's administration, including Carbon Credits:

And the time has come to aggressively accelerate that transition. The time has come, once and for all, for this nation to fully embrace a clean energy future. (Applause.) Now, that means continuing our unprecedented effort to make everything from our homes and businesses to our cars and trucks more energy-efficient. It means tapping into our natural gas reserves, and moving ahead with our plan to expand our nation’s fleet of nuclear power plants. It means rolling back billions of dollars of tax breaks to oil companies so we can prioritize investments in clean energy research and development.

But the only way the transition to clean energy will ultimately succeed is if the private sector is fully invested in this future -- if capital comes off the sidelines and the ingenuity of our entrepreneurs is unleashed. And the only way to do that is by finally putting a price on carbon pollution.

Obama June 2, 2010 speech at Carnegie Mellon

And who's to set that price for "Carbon Pollution".. Why Goldman Sachs, of course!!

So there's the financial foundation for the BP conspiracy.

But wait.. There's another tangent to this BP oil conspiracy. Some have asked the question as to why it's taken so long to FINALLY figure out a NATURAL MEANS of dispersing and eliminating these millions of barrels of Hydrocarbons spewing from ocean floor? They've spread dispersing agents, which are just as toxic as the oil itself, but ONLY NOW are we seeing commentary about using PROVEN natural microbes that feast on hydrocarbons. In fact, these microbes evolved in response to NATURE'S own little oil spills, which have occurred over the eons.

Watch this video.. as tens of thousands of other people have, and ask yourself why this technology wasn't deployed immediately?

Oil Eating Microbes could mitigate much of the damage to the Gulf oil spill

Yes indeed... Why weren't oil consuming microbes immediately deployed to consume the oil spewing from that well? Especially since these microbes would then recycle that oil back into the marine food chain, serving the purpose for which nature evolved them?

Nature has dealt with oil leakages for Billions of years and we think we can do a better job?

Scrutinizer

Two items for this morning.. "“Individual investors placed a greater emphasis on return of capital last month because of the volatility in the stock markets. The movement of portfolio dollars out of equities and into bonds/bond funds and cash corresponds with the latest AAII Sentiment Survey, which showed bearish sentiment at 50.9%, the highest level of pessimism recorded since November 5, 2009. (Bearish sentiment is the expectation that stock prices will fall over the next six months.)”"

Are small investors popping smoke and leaving the stock market?

It's worth going back and reviewing this article on what likely caused the flash crash of early May:

"According to this Wikipedia article on quantitative trading strategies, HFT recently accounted for more than 70% of all trading volume on US stock exchanges. Does it matter when these firms stop trading and pull all their bids? You bet it does."

Dress Rehearsal for fully automated crash.. Flash Crash revisited

Pretty frightening prospect to know when you're buying a stock you're trading against computers who can pull the rug out from under the market for your company's shares in a split second.

It's apparent the markets are not so much about human decisions regarding "price discovery" in assessing the fair market value of a particular asset. Computers are making these decisions and they are non-emotional, calculating devices. So essentially people are just feeding money into these digital trading systems, systems that can quickly manipulate prices for a stock with the flip of a switch.

Little wonder that investors saw the "flash crash" as a sign that the market is rigged against them and have decided to seek safer havens. And certainly that decision has been influenced by the tremendous event risk I spoke of in my previous post.

Scrutinizer

When will the pain end (at least for now)??

There's a sentiment indicator that some technicians utilize to help assist in determining bullish/bearish sentiment.

This is for the Dow Industrials.

$BPINDU bullish sentiment

Note that the trend line indicates that the likely potential bottom will be when bullish sentiment reaches 36%. It may go lower, it may reverse higher than that trend line.. It's just a reference and we can see that it's bottomed at previous points on the trend line.

Note... you can also pull up a Point and Figure (PnF) chart (the Grand-Daddy of all Technical Analysis) for the DOW and SPX ($indu, $spx.. and throw in the Russell 2000 for good measure, $rut)

They will show you that the SPX has a downside target of 925 on this Pnf chart:

S&P 500 PnF

And for my friend Megan, here's that Video I promised you where the Karl Deninger makes a analogy between current market conditions and 2007:

Whistling past the (Investors) Graveyard


Scrutinizer

Commodities are collapsing.. Bear signal we haven't seen since fall of Lehman..

Bear Signal... Commodities show biggest drop since Lehman collapse.

Watch the RUT (Russell 2000). It's being cannibalized to prop up the larger indices so they can distribute.

As Richard Russell stated, we have a "Hard Rain" coming.

Hard Rain a'coming!!

Scrutinizer

How to define "Event Risk".

Ok.. I'm motivated to write another post today because my head is reeling over what transpired overnight with Israel's boarding of that Turkish vessel filled with "humanitarian aid" for Palestinians living in Gaza.

First off.. I'm going to try and maintain my objectivity with regard to Israel's actions. I'm not Jewish, nor am I a die-hard Zionist. The only reason I support Israel is because it's the only truly democratic state (flawed as it may be) in the region. Hamas, although it was elected, can hardly be considered "democratic", nor do they permit any effective opposition. Furthermore, they have publicly stated that it's not just the elimination of Israel that they seek, but also the restoration of the Islamic Caliphate, as well as conquest of Europe and the "Two Americas"..

Don't believe me? Watch for yourself (courtesy of MEMRI):

From the Horse's mouth.. Dirka, Dirka, Jihad

It's clear that Hamas is in a perpetual state of war with Israel until they have succeeded in destroying the Jewish state. They will not make peace because it would be against their political charter and undermine their very "raison d'etre".

But politics aside, the issue at hand is how Israel should respond to attempts by so-called "humanitarian" groups attempting to assist Hamas and remove the blockade/seige.

I think Israel didn't think this through very well. Obviously fast-roping commandos onto the decks of this ship didn't turn out the way they thought it would. Now they have created an ENORMOUS problem for themselves because the 9 deaths that resulted have made their former ally, Turkey, extremely angry, possibly to the point of open hostilities.

Israel should have relied upon non-lethal means to disable the ship. The use of heavy netting, laid in front of, or bracketed by several Israeli patrol boats, would likely have fouled the ship's propellers and forced it to be towed.

And now that these groups are threatening to send another ship to break the blockade (the RV Rachel Corrie, registered in Ireland), they DEFINITELY need to get a grip on a non-lethal deterrence or interdiction technique that separates protesters from IDF personnel. The Israelis have already stated they will stop and detain this, and any other ship, that attempts to break the blockade.

However, in the process Israel has now essentially alienated any allies that it possessed, so we should not understate the level of tension right now. Egypt, which had been also blockading Gaza, has suddenly opened up those gates. It's even possible that Egyptian forces may be mobilized to establish a presence in Gaza. If this occurs, hopefully it will lead to the overthrow of Hamas (which Egypt truly despises as it is an offshoot of their own Muslim Brotherhood).

But how are the markets going to take this is the question? Who in their right mind is going to believe that a potential war between Turkey and Israel would be a reason to buy stocks, either in Europe, or the US?

North Korea

North Korea is a situation that is also factoring into global "event risk". NK is a nuclear power and therefore, presents a scenario where they could choose to create significant turmoil in the region with only the risk of economic sanctions (which already exist). There is no way the UNSC is going to vote for any military response in answer to the sinking of the S. Korean ship.

One should also remember that NK has several hundred artillery batteries within range of Seoul, S. Korea. Any outbreak of hostilities would lay the SK capital to ruins and result in a horrendous refugee problem, as well as economic tumult for the 15th largest economy in the world. It would become a war of attrition fought across the 38th parallel and via naval engagements and bombing raids.. All because no one in their right mind would be willing to risk a nuclear attack that would be the obvious response to any threat to the NK regime.

Kim Jong Il is getting old and he wants his son to assume power upon his death. But the military, it is rumoured, doesn't think Kim is being aggressive enough and it's possible they are following their own course of action with regard to war with SK. Generals derive their power from their "toys" and if they don't get to eventually use them, they can assert the current regime is not assertive enough in advancing NK's interests.

So, regardless of whether Kim actually ordered that attack on the SK ship or not, he owns the situation now and has to save face and stand firm and defiant. He will not bow to Chinese pressure, IMO. And China has no desire to see hundreds of thousands of NK refugees flooding across their border with NK.

It's also possible that Bejing has an interest in permitting a bit of turmoil to erupt in order to advance their own global political position. I don't see them exerting too much pressure on Pyongyang without obtaining some valuable concessions in return.

Thus, why would anyone want to buy stocks when such a scenario lies before them?

Europe

Then there's the problems with the EU.. I'll be short with this since it's been covered all over the internet. The Euro came within a hair's breath of breaking long-term support this morning and sparking a decline that some postulate would result in parity between the USD and Euro. (1:1). It's possible that this may happen tomorrow..

Understand this. Europe NEEDS AND MUST HAVE a lower Euro if they are to grow their way out of this debt mess in which they find themselves. They need to EXPORT BABY, EXPORT!! to generate revenues. So they are pursuing a "beggar thy neighbor" policy that has been followed by both Japan and China for years now. And all of this will be at the cost of US exports and markets. We'll buy more and sell less, thereby reigniting the long-standing problem of our trade deficits.

So don't expect Europe to get it's act together anytime soon. They want a cheaper Euro, but they have to be careful how they go about achieving it without appearing to be waging the mercantilist economic war they require.

Also remember that China owns over $600 Billion Euros worth of reserves. If the Euro falls to parity with the USD, China takes nearly a 20% haircut on that cash stockpile. That's not going to sit well with them.

Flash Crash.. Is this fixed, or just a preview? Or can the computers get switched off again and send the DOW down another 1,000 points in the blink of an eye??

I'll be honest.. I'm playing TZA, which is a Ultra-short ETF that's inverse to the Russell 2000. I figure that even if the Dow and S&P manage to stabilize in the short-term, it's going to come at the expense of the small caps. They are going to become a source of funds for propping up the large cap indices as a last gasp effort to stave off what appears to be the inevitable collapse from that 10 year H&S formation we're forming.

So that's what our markets are facing right now.. Why do you want to buy when your potential loss is upwards of 40-70% before all is said and done?

And lastly, I'll leave this to ponder.. What if you were any number of leaders of a tyrannical rogue state. And what if you had considerable assets (all of which you've exploited from your oppressed masses) squirreled away in foreign bank accounts? And what if you happened to be savvy enough to see that 10 year H&S formation and wondered, "What can I do to initiate, and therefore profit from, that collapse? Kim Jong Il has billions of dollars worth of assets in foreign accounts, all managed by his son.

Seems to me that's one hell of a motivation to create as much tension as possible short of outright war and risk to the regime.

That's all for now.. more later...

Scrutinizer

Been about a year since I've blogged.. Things have been hectic and full of family crisis..

I've decided that I need to post this chart for everyone to ponder. It involved a chart formation that Technical Analysts refer to as a "Head & Shoulders" formation. It's EXTREMELY BEARISH if it resolves to the downside.

Here's the chart:

Mother of All Head & Shoulders

One must recall that while this chart covers from the 1960 to present, the most important portion to review is the past 11 years from the popping of the internet stocks, through 2008 and the popping of the real estate bubble, to present day, where "event risk" is in all the headlines. This event risk can range from the breakup of the EU to potential conflict on the Korean peninsula or mid-east.

In understanding H&S formations, there is a left shoulder (formed in 2000), the head (formed in 2007), and now the right shoulder (formed over the past 2 years).

David Singer pointed out this H&S formation and potential implications in the following chart. Pay particular attention to the potential scenarios he draws out at the bottom left of this chart. Note that he is describing a "minor" H&S potentially forming within the time range of 2008 to present, while the chart I show above is over 11 years:

Anyone got a parachute?

And another market analyst who sees the same thing and posts his opinion on the DOW, as well as many other critical charts important to future economic growth:

Even more frightening charts

Now for those who have paid attention, they will recall that in 2000 Microsoft (MSFT) was the largest cap stock in the Nasdaq and that marked the top of the "left shoulder". Right now Apple (AAPL) has surpassed MSFT's market cap for the first time and it's my belief that it will determine when (or if) that right shoulder manifests itself. I see that there was a upgrade for AAPL today that puts a target on the stock well over $300 (currently $264 as I type this). A new high in AAPL, or breaching of the Weekly Parabolic SAR at $267-268, could provide a respite to the downturn. It's a critical price level I'm watching.

Additionally, we had the "Flash Crash" where the DOW dropped 1000 points in under 15 minutes. We still have no explanation for that event. I suspect that it reflects the fact that more and more investing is computerized and when the computers shut down (especially those conducting "High Frequency Trading") it pugs the rug out from under the market. I don't see anything that prevents another repeat of such an event.

Does that make you want to go long in this market?

The implications are clear.. We're at an inflection point in the American stock markets that we haven't seen since the 1930's. If this market resolves into a H&S formation, the consequences (and price declines) will be incredibly severe. Support on this chart is not likely until DOW 3,000.

Now.. many readers might question and say.. "Hey Scrut.... Most US companies have posted better than expected earnings this past quarter.. so how can the markets go down??!!!"

Listen.. we had a Trillion $$ DIRECT STIMULUS package, almost 10% of US GDP, that has only yielded 3% economic growth. That's a 3:1 ratio of taxpayer funded debt to generate 3% economic growth.

JPM has a balance of almost $1 Trillions, yet could only obtain 3 Billion in profit:

"JP Morgan has a balance sheet of $1 trillion and can borrow at essentially zero, he notes. So if they just go out and buy 10-year bonds at 3% they should be able to earn $30 billion a year. Yet the bank announced a profit of $3.3 billion last quarter."

How to make $3 Billion on a Trillion dollar portfolio (scroll halfway down)

Furthermore, commodities are no safe haven (beware gold bugs):

Commodities Con

Richard Russell, noted student/teacher of the Dow Theory has issued a dire warning of impending collapse (and he has considerable credibility).

Hard Rain a'coming!!

What we're seeing is deflationary pressures and de-leveraging. A world gone crazy and extremely vulnerable to event risk. M3 money supply contracted at rates not seen since the 1930's.

M3 money supply contracts at 1930's pace

That's people paying off, and/or defaulting on debt. Debt that is erased equates to destruction of money supply. Destruction of money supply that exceeds creation of new money (via new interest bearing debt) is deflationary.

Most importantly, the speculation in unregulated "naked" Credit Default Swaps is creating a domino effect where asset prices are being undermined by "non-insurable interests". That's a fancy way of saying that your neighbor can speculate that your house will burn down, buy an insurance policy against such an event, and the proceed to perpetrate arson against your home in hopes they can collect on that insurance.

Why would any company, or nation for that matter, want to issue new debt under such conditions? Without regulation of the CDS markets, there is no incentive take on risk to create economic growth. That's incredibly deflationary.

Therefore I'm recommending either people move to cash, bonds, or "Bearish" ETFs (though not without their own inherent risk given that several ultra-bear ETFs were just as affected by the "Flash Crash" as the long ETFs).

Bearish ETF list

I'll try and post more often now.. We're at a very critical inflection point in our markets, IMO.. And I'm advising all my friends to get defensive until we see clear signs of a buy signal. One of the means I use to assess that is using Parabolic SARs as a TA indicator. I'll try to speak more on that in a future post.

Scrutinizer

Evidence of abuse by short-sellers (Naked Short Selling):

Margin debt is down 55% since 2007:

http://suddendebt.blogspot.com/2009/04/margin-debt-again.html"

YET.. March, 2009 saw the largest increase in short interest in over 9 months!!!

http://zerohedge.blogspot.com/2009/03/early-march-saw-largest-increase-in.html"

Some short sellers claim that short selling enhances "price discovery". But since the only stock that is supposed to be available for shorting is MARGINED STOCK, please tell us again just how is short selling creating “price discovery” in the past 2 years?

This smells like fraud to me, if not outright counterfeiting of stock certificates.

Again, short selling is a legitimate means for countering excessive use of margin. When margin debt decreases, short selling should ALSO decrease to meet the available supply of shortable (margined) stock.

So we're left with only 2 conclusions. Either mmkrs/specialists are loaning out stock held in cash positions, or they are counterfeiting shares and selling them into the market.

Scrutinizer

Haven't been too active on this board recently.. but I see I'm starting to get some comments, so it's time to update some of my positions...

As I mentioned in a reply to a comment from imapedestrian, I've tearfully sold out of my CCUR position, and reallocated it to GNBT based upon Technicals and the perception that they are about to go Phase III on their Ora-lyn insulin delivery system..

I do remain skeptical about GNBT's CEO, Anna Gluskin, but I think that some of their directors will provide the necessary managerial credibility. Dr. Gerald Bernstein, a former president of the American Diabetes Association, is on their BOD, and would be an excellent "face-man" for the company when it comes time to do CNBC interviews. But even if he's operating behind the scenes, that's fine with me..

Anyway.. the chart for GNBT indicates we're very close to an inflection point on a rising wedge formation, which could lead to a breakout that takes the stock almost 75% higher to the $2.50/range within the next 30-60 days.

Daily chart:

Daily chart

Note the "golden cross" of the Moving Averages on the daily chart... Very bullish, IMO, although we may have a short-term pull-back consolidation.. Volume has been very good in recent weeks and it appears accumulation is occurring.

And when we look at the monthly chart, it becomes evident that the bollinger bands are definitely pinching, a further indicator of a future major move to be expected in the stock (hopefully upward.. ;0)

Monthly chart

As for DNDN.. I also, regretfully, was forced to sell that stock at a loss, and even now, with the recent news that FINALLY Congress is pushing for an investigation into the FDA decision on Provenge, the stock is trading below where I sold it at. All of that support that had been built into the stock over the past 6 months has now turned into resistance and it's going to require substantial news to overcome it.

Thus, under $8/share, DNDN is a very speculative trading vehicle.. But as I type this, I see the stock is trading at $7.70 on heavy volume (short covering, I suspect.. ;0)

The Scrutinizer

CCUR and VOD update

An interesting article on VOD development plans by major Cable companies. One of the deficiencies of the article is their failure to note CCUR's subsidiary, Everstream, and it's VOD tracking services that enable providers to track who's watching which program (very useful for targeting dynamic ad insertion to the most receptive audience). They also fail to mention that CCUR's VOD operating system software, as I understand it, is fully capable of dynamic ad insertion.

VOD's Growing Pains

VOD's Growing Pains

Come Together
(Broadcasting and Cable) _ Can cable operators, programmers, advertisers design a VOD model that works?

By Jon Hemingway

When it comes to video-on-demand (VOD), cable operators, networks and advertisers are a lot like eager summer tourists on a road trip: They know where they want to be but can't agree on how to get there.

Most TV executives agree that watching favorite primetime shows whenever you want will be a reality within the next few years'or sooner. According to a recent study by the Leichtman Research Group, the portion of U.S. digital-cable households that have used VOD grew from 25% in 2004 to 60% in 2006. And a study by PricewaterhouseCoopers (PwC) reveals that, although VOD represents a fraction of end-user spending on television distribution, the segment is by far the fastest-growing.

Viewers will spend $2.1 billion on VOD services in 2007, a 23% rise from 2006. PwC projects such spending will double by 2011, to $4.2 billion, a compound annual growth rate of 19.5%. No other service element available today will grow as fast. But cable operators and advertisers are still trying to figure out the right advertising model, as networks begin to experiment with putting popular programming on VOD. There's no big rush from programmers because the audiences'and fees'are still so small. Cable operators find themselves in need of more television programming to feed a hungry audience.

Viewers have shaped the evolution of VOD in no uncertain terms. Early deals with broadcasters to carry content on a transactional on-demand basis were scrapped when viewers balked at paying for the content. Free, ad-supported offerings became a focus. Cable operators are growing this category at a rapid rate to distinguish themselves in the eyes of the consumer. Free content represented 67% of total first-quarter orders tracked by Rentrak, which measures VOD usage.

Says Comcast VP of New Media Matthew Strauss, "[Video-on-demand] is no longer new. It is now integrated into how people watch television." Comcast, the nation's largest cable operator, has nurtured its VOD into a business that registers 250 million views a month. "That's 250 million times that viewers are not watching traditional television," he says.

Viewers have become so accustomed to VOD offerings that Time Warner Cable is reaching out to linear viewers with VOD functionality. Its Enhanced TV suite allows viewers to start at the beginning of a program if they tuned in late (Start Over function) or view programs that aired earlier in the day if they missed them (Look Back). It doesn't, however, allow the viewer to fast-forward.

Cable operators'and competing telephone companies'have not charged consumers directly for most VOD because the service has been used "as a tool for retention," says Tricia Lynch, director of Verizon FiOS TV programming, noting that it increasingly shows up on consumer checklists. Many cable operators believe that, once viewers are hooked on using free on-demand, they will gravitate toward the premium content.

Increasingly, the big broadcast networks smell opportunity. Cox Communications and Disney-ABC Television will run a trial this fall in which Cox will provide four primetime shows and other content on-demand the day after it premieres.

To lure advertisers, Cox will disable the fast-forward function on its system, and the two companies will test dynamic ad insertion. With dynamic insertion, operators can offer targeted ads to be swapped in and out of content as it is delivered. Usually, ads are inserted in advance and cannot be swapped out once the content is on the operator's network. Dynamic targeted ad insertion is the linchpin that operators hope will bring all parties, content and advertising, to the table.

"We need to make sure the next move in advertising has incentives for everybody involved," says Verizon's Lynch, whose company is testing dynamic insertion through year-end and expects to implement it in 2008.

Cable operators are still considering revenue-sharing plans and operational tolls per ad and per insertion. Advertisers are attracted to the targeting potential of dynamic ad insertion, which will give them the ability to accurately measure viewer response to advertising and address ads to viewers based on preference and behavior, far more specifically than the data relied on now.

"It all comes down to the fact that, with VOD, you have a unicast connection to the customers," says Jim Owens, solutions marketing manager for Motorola's home and networks mobility division. "In [delivery over the cable plant], you can make some distinction between service groups, ZIP codes and ad zones. But with VOD, you have a one-to-one relationship with a person that's time-specific. You have this live connection with them.

Such targeting, however, is still a ways off, cautions Owens: "It is technologically possible, but there are a lot of challenges and a lot of changes on the sales side and the systems side in how you manage the inventory and sell it."

Moreover, advertisers point out that the audience for VOD represents under 5% of total viewership. "They still need the impressions," says Maria Mandell, executive director of digital innovation, Ogilvy Interactive. "The CPMs are high at about $50, compared to $25 for online, due to limited impressions." She notes that, while advertisers have participated in some ad-insertion trials, no one is actively pitching it to the ad community.

James McQuivey, principal analyst covering media and entertainment technology at Forrester Research, says momentum toward expanding VOD has never been stronger. "It's good for the advertisers, it's good for the operators, it's good for the networks," he says. "The only one we have to wait and see on is the viewer."

While the network operators work feverishly to expand television content, they are also working to squeeze shut the window between DVD release and VOD availability. Operators are conducting day-and-date trials. "We think it's inevitable," says Bob Benya, senior VP, on-demand product management, Time Warner Cable, referring to the eventuality of day-and-date release. Time Warner Cable has been in trials with Warner Bros. Studios and Lionsgate Films. The studios, wary of cannibalizing their existing channels, are taking a cautious approach.

Warner Bros. began testing day-and-date release with Comcast last November in Denver and Pittsburgh and will extend the run through the coming November. What the studio sees in the results is a sharp spike in VOD usage of 52% versus comparable non-trial markets and a strong, 10% increase in DVD sales with just a marginal, 2%-3%, hit to rentals. In its trials with TWC in Austin, Texas, and Columbus, Ohio, the studio says, the early numbers show increases across all indexes.

IFC is finding success with a different model, simultaneous VOD and theatrical release. Launched in March of last year on Cablevision and Comcast, IFC's In Theaters proved a unique opportunity for the less commercial, or specialty, independent titles in the company's stable, allowing them greater reach than they would otherwise receive.

IFC's In Theaters introduces two films a month on-demand as they hit the big screen. The price per 24-hour viewing period can vary but averages about $5.99 per film, and the films are receiving 50,000-75,000 views a month each.

"The theatrical distribution model for specialty films was not viable anymore," says IFC President Jonathan Sehring, "We saw what a great technology VOD had become."

Cable Vendors Predict Surge
Vendors tweak old platforms for new applications

By Glen Dickson

VOD technology vendors are forecasting a surge in sales as cable operators upgrade their existing infrastructure to support more VOD content, including bandwidth-intensive high-definition fare, and new applications such as timeshifting and targeted advertising. Providing a better VOD experience generally means both adding storage capacity and expanding the number of on-demand "unicast" (i.e. delivered to a single set-top) streams that can be delivered simultaneously to subscribers.

New applications such as providing the timeshifting capabilities of a digital video recorder (DVR) through VOD, sometimes known as "network DVR," require a dramatic expansion in the number of program streams that can be ingested at one time, as operators will need to record and store the most popular shows in real-time. And delivering up-to-date and/or targeted commercials within a VOD program, a technique known as "dynamic insertion," necessitates heavy software integration between the VOD platform and existing traffic systems.

Cable operators and competitors aren't facing a full-scale swap-out of existing infrastructure, but instead incremental upgrades and expansions. As a benefit, some of the network upgrades for VOD can also be used to deliver more linear HD channels and faster high-speed data service.

This upgrade investment will be far less than the massive infrastructure buildup in the mid-90s. "On an order of magnitude, we're talking hundreds of millions" of dollars, says Ferris Baker Watts analyst Murray Arenson, who covers leading vendors SeaChange, C-COR and Concurrent.

Basil Badawlyeh, VP of on-demand strategy for C-COR, says that competition is driving cable's investment on VOD infrastructure, whether it is DirecTV's planned expansion of high-definition programming, Verizon's new fiber-optic-based television service or Amazon's plan to sell movie downloads through TiVo digital video recorders.

"The biggest catalyst is the fact that competition is heating up in a very big way," says Badawlyeh. "The other piece of this is that the type of content historically available on video-on-demand is catering to different demographics of people than what the industry was originally pushing towards."

As the content mix shifts, "broadcast on-demand" services like Time Warner Cable's Start Over, which lets viewers tuning in late to a primetime show jump back to the beginning by initiating an on-demand stream, are the biggest current driver of VOD investment.

Most VOD systems were initially designed as simply a better form of pay-per-view; that is, they were intended to deliver premium movies on a transactional basis. So most of the existing systems were designed to deliver VOD streams to about 10% of the VOD-capable homes within a given service area, sometimes less than that.

But with Start Over, Time Warner has found contention rates jumping to 40-50% as subscribers discover a more convenient way to watch the most popular shows. "The networks are being designed for a lot more concurrent stream usage," says Badawlyeh.

Concurrent, which is one of Time Warner's key vendors for Start Over, has focused on the reliability of its MediaHawk 4500 platform as more brand-name network content moves to VOD, says director of marketing Tim Dodge. "Session success rates in the low 90s used to be acceptable, now they're asking for 99.5%. VOD is really becoming a mission-critical product offering."

Storage is also being increased, says Badawlyeh.

Time Warner has doubled the storage in many systems from 2,500 to 5,000 hours and Comcast, which was an early leader in promoting "free" i.e. ad-supported VOD content from networks like NBC and CBS, is specifying VOD systems with a minimum of 4000 hours of storage.

"We see a lot of interest in much larger content libraries," adds Kip Compton, senior director/general manager of Video & Content Networking for Cisco, which entered the VOD game last year with its acquisition of Arroyo Video Networks. Compton, a former Comcast executive, says that while a 5,000-hour VOD system might have once seemed to be very robust, "we see 50,000 and 100,000-hour libraries in the not-too-distant future."

The way operators are storing on-demand video is also changing, as they move toward distributed architectures that place content on different types of storage, depending on how often content is accessed. Cisco uses varying types of storage: SATA drives for low-cost storage, SCSI drives for low-cost streaming, and some RAM (random access memory) storage to hold the most popular content.

Motorola, which entered the VOD business with its acquisition of Broadbus Technologies in Sept. 2006, thinks it has an edge in handling the explosion in VOD content through its solid-state server architecture. The company, which is supplying the servers for Time Warner Cable's Start Over deployment in San Antonio, uses dynamic random access memory (DRAM) storage for content ingest and streaming, as well as storing the most popular content. It relies on hard disk for storing the much greater volume of content that isn't accessed as frequently.

In order to serve a greater number of streams more efficiently, SeaChange has developed a new VOD server that uses flash-memory storage instead of hard disk and is designed to share high-demand content.

Another exciting prospect for VOD is expanding the amount of high-definition programming. To date, there has been very little HD content available on-demand, due both to concerns about copy protection and the relatively small number of HD-enabled homes. But with flat-panel HD sets flying off store shelves, the cable industry knows that hi-def VOD will soon be a requirement for customers. There is also the looming specter of satellite operator DirecTV, which has heavily promoted its plans to broadcast some 100 HD channels by year end.

Comcast has taken the lead in providing hi-def content through VOD, including movies from premium networks HBO and Cinemax, primetime fare from A&E, and even hi-def artwork and fine photography from Seattle-based Gallery Player. Cox has added HD movies to its on-demand library, and other operators are also expected to soon bulk up their offerings.

"The number one priority for most cable operators out there is expanding their hi-def offerings, as there is a lot of competition from satellite guys advertising 100 HD channels," says SeaChange's Phil Simpson, director of product marketing for on demand solutions. "HD VOD is a strategic opportunity for cable, but it requires more streaming capacity and more storage capacity."

With HD streams coming in at 15 megabits per second (Mbps) compared to the 3.75 Mbps required for standard-definition VOD, the bandwidth implications are pretty easy to comprehend.

Some operators will be grabbing more bandwidth by upgrading their hybrid-fiber-coax plants from 750 or 860 megahertz (MHz) to one gigahertz (GHz). Many others will rely on the relatively new transmission technique of switched digital video (SDV), which conserves network bandwidth by delivering linear program channels in unicast form, much like a VOD stream is delivered. Some operators will employ a combination of both solutions.

"The beauty of switched digital video is it really blurs the linear stuff with the nonlinear stuff, and it's totally transparent to the viewer experience," says David Price, VP of business development for Harmonic. Harmonic sells both VOD software (it acquired VOD specialist Entone Technologies last year) as well as the "EdgeQAM" devices that are used to transmit digital video and data down cable pipes.

When cable operators look for new revenues to recoup their VOD investments, targeted advertising is the hot topic. Traditionally, inserting commercials in VOD content was a time-consuming process that required re-encoding the content to insert new spots. That meant spots might be several weeks old before they aired, thus limiting their appeal to advertisers. But through the new technique of dynamic insertion, fresh spots can be spliced into compressed VOD content as it streams from the VOD server, and more importantly, targeted spots can be delivered to individual set-tops.

C-COR played an instrumental role in one of the first trials of dynamic advertising insertion with Charter Communications in St. Louis. The trial successfully delivered dynamically-inserted spots to some 250,000 digital subscribers.

SeaChange has also experienced success with a dynamic insertion trial with small Kansas-based operator Sunflower Broadband. The trial, done in partnership with Atlas, MTV Networks and Mediaedge:cia, runs on SeaChange's AdPulse software.

Harmonic's Price thinks that targeted advertising will show up alongside premium fare as well as free VOD, particularly as the windows for VOD movies get closer to the DVD window. He says that operators are mulling the idea of selling a new theatrical release on-demand for perhaps $7.99 for a commercial-free version, and $5.99 with five minutes of ads running before the movies. Says Price, "If you know a person bought 'Talladega Nights,' then you know they are interested in watching a NASCAR promotion and you know they are interested in the latest oil from Pennzoil."
In order to pursue such targeted advertising opportunities, integration between VOD and existing traffic and sales software is crucial. Compton and others point to the Society of Cable Telecommunications Engineers' DVS-629 standard as a likely interface between the VOD platform and ad decision systems.

The continued march of popular content to the on-demand platform is inevitable, says Jonathan Bokor, VP of business development for Tandberg, which provides its AdPoint on-demand advertising software to Comcast. But while most VOD advertising trials have experimented with pre-and post-roll ads, Bokor doesn't think that the basic look and feel of VOD commercials needs to be different from what people are used to in linear TV.

"I don't see why the ad breaks should be much different than when you turn on the TV today," he says. "I know it's a bit of a clean slate, and most of the high-value content hasn't been there yet. But why should there be a different ad load in on demand than in linear?"

Video-on-demand could be called child's play at the moment. Kids' programming represented 24% of total free VOD orders in the first five months of 2007, behind music and movies, according to Rentrak. TV executives believe this is the start of something big. Viewers are eager to see the primetime shows already appearing in cable systems' VOD packages. Equipment makers predict a surge in the hardware needed for storage and dynamic ad insertion. But VOD ad dollars represent a fraction of advertiser spending on TV. Can networks, advertisers and TV distributors make VOD profitable?

*********************************

I think what we can all sum up from this article is that VOD presents a TREMENDOUS opportunity for cable companies to generate ad revenue in a manner we have seen with Google and other content delivery networks via the internet.

And it's likely there will be tremendous amounts of money invested in the industry over the next several years, and the potential for some of the smaller players (like CCUR) to get bought out by the bigger players.

The Scrutinizer

Trading updates:

DNDN had HUGE volume on the 3rd of July (which was a shortened trading session). Expect the same thing today. As of this writing at 9am on the 5th, over 300K shares have traded in pre-market. The driver of the recent action is a study by leading Cancer researchers that suggests immuno-therapeutic cancer treatments, like Provenge, do seem to increase patient survivability. They also stated that such treatments which rely upon using the patient's own immune system to fight the cancer, require more time to work, thus patient studies should be adjusted by the FDA to take this fact into account.

But most of all, CNBC's "Fast Money" noted the extreme call option activity in the stock:

"Fast Money" calls DNDN a potential lottery ticket

In my opinion, with over 40% of the stock float (tradeable public shares) short, this represents a tremendous potential for gains of 50-100% in this stock. The SEC is cracking down on "naked short selling" and DNDN's shares have been on the SEC's Reg SHO list for months now:

Reg SHO list

Now.. some of my other positions. QTWW experienced a significant "downdraft" as it was removed from the Russell 3000 index and their placement of $18 million in shares at 1.50. But it remains in an uptrend channel:

QTWW charts for 5 July

Rumours also seem to abound that FRPT will receive a huge multi-billion order from the military for their Cheetah MRAP vehicles, and this could provide some support for QTWW, as they have some engineering associations with FRPT.

Furthermore, it would appear that GM is planning on focusing on Fuel Cell vehicles, and that would definitely play into QTWW's benefit.

GM prioritizing alternative energy vehicles

I'm expecting a rebound in QTWW to at least $2/share as a retest of resistance. But to penetrate that price, it will require some positive news, IMO.

NOW... I wanted to update the activity in CCUR. I ran the charts today and what I'm seeing is probably one of the most bullish TA "Grand Alignments" I've ever witnessed. Every chart, hourly, daily, weekly, monthly, quarterly, has turned positive for CCUR. Now all that is required is substantial positive news, and volume and the shares could easily rally to $3-4/share short-term..

Don't believe me? Check it out for yourself:

CCUR charts for 5 July

Be sure to imput the monthly and quarterly time frames into the charts to observe long term trend.

Finally.. GNBT..

GNBT is at an inflection point. If it breaks below current price levels, it will face some difficulties short term. The stock requires news and volume in order to move higher and hopefully we'll see this sometime this week. R&R has reiterated a $6/share target, citing increased interest in Oral-Lyn as a result of GNBT's presentations at the ADA conference a few weeks ago:

GNBT charts for 5 July

I'm also starting to research and review BCON, and I'm also starting to get re-interested in MVIS (but I need to see that stock stabilize). Also, INAP is looking like it's trying to find a bottom here as well, but I expect some churning of the shares over the short term in order to rehabilitate the chart:

INAP daily chart

Happy Trading!!

The Scrutinizer

Is Generex (Nadaq: GNBT) a "Sweet Buy"?

NOTE: I'll be editting this, so check back for updates every day as I collect more links and arrange my thoughts.

JUNE 18th NOTE: At the moment I'm waiting for some direction in the price of GNBT before re-entering the shares. There seems to be a "battle" going on between big block trades at the current price of 1.80-1.86. It's hard to discern if the recent short-term support is merely some MMkr propping up the stock in order to permit shorts to enter positions, or whether it represents institutional buying holding the stock up. But it's definitely overbought on the daily chart and could trend sideways to lower for the next couple of days unless we see a catalyst for a move back up. But I don't believe any pullback will be long-term, so "dipping your feet in the water" and buying a few shares wouldn't necessarily be foolish here, so long as you are aware that the price might plunge short-term (and give you a chance to back up the truck).

Been trading GNBT for the past couple of days and banked some decent coin (approx 15% over 2 days). This stock just had a TREMENDOUS spike upward, motivating by a influential 42 page analyst report asserting that he has a $6/share price target within 18 months.

GNBT Analyst recommendation

R&R Analyst Report for your reading pleasure

So what does Generex do? Well, this little Canadian Bio-Tech has a couple of things on the plate. First off, they offer a "buccal" administered insulin drug (think asthma spray-style applicator, except you don't breath it in), which has been approved in Ecuador, and is now pending serious FDA approval. Secondly, via their subsidiary, they are working on some immuno-therapies for breast cancer. Thirdly, they have been working on "Bird Flu" vaccines (which was all the rage several years ago).

Generex Website

Now.. let's start off with the daily chart for GNBT so you all can see how historically volatile this stock has been (note that for a longer time frame, you will need to enter in 2 or 5 year numbers):

1 year Daily Chart

As you can see.. this stock is given to SERIOUS volatility!!!

So.. is it a buy? Well, that depends upon your time horizon. Being a short-term day and swing trader, I like to buy low, bank my coin on a surge, and then look for a re-entry point at support (usually on the 60 minute chart):

GNBT 60 Minute Chart

That 60 minute chart, per the day of this posting, 15th June, really looks interesting if it can hold it. There is a "pinch" forming on the hourly Bollinger Bands. Now for those not versed in BBs, they are a trader's WET DREAM!! They signify that longs and shorts are facing off like two hockey teams. And when the puck (representing the price of the stock) gets thrown in amidst them, they will battle with each other to try and send it one direction or the other. And whichever way that puck goes, both sides go as well. So, if the price goes up, both sides go long.. If it goes down, both sides go short. This will continue until the next level of support/resistance is reached. And the longer the time horizon (daily, weekly) the stronger, and longer lasting, the move.

Well, my trade in Dendreon (Nasdaq: DNDN) from Thursday did not go well on Friday. I bought it after it retraced from it's $13/share high, under the belief that $10 would provide psychological support as the shorts covered. Recall that some 40-50% of the stock's 83 million share float has been shorted and that's significant considering the stock was once $25/share just a few months ago. But as a result of the controversial FDA ruling, the shares plummeted.

Here's a link to the CNBC interview with Dr. Gold, DNDN CEO back in March when the FDA panel recommended approval for Provenge:

March, 2007 interview on CNBC with DNDN CEO

DNDN short interest as of May 15

The company has completed Phase III testing on its Immunotherapeutic drug for Prostrate Cancer, Provenge and has received "fast track" authority for final approval. And what is more interesting is that it's the first cancer drug that is designed to assist the bodies own immune response to target the cancer cells, rather than typical chemo-therapy that uses chemicals to destroy the cancer (and generally winds up killing other healthy cells and weakening the immune system as a result). So we're talking about some innovative bio-technology here that could have a huge impact on fighting not only prostrate cancer, but other forms as well.

But what is the company's stock worth, should their drug be approved by the FDA?:

DNDN value analysis

This gentleman from the "Seeking Alpha" website suggests that there are signs of major "corruption" within the FDA advisory panel that has been delaying approval of Provenge and this makes sense to me:

Seeking Alpha's comments on DNDN and FDA

So we're engaged in some serious market valuation "Hardball" and both the shorts and longs are lining up for a market "brawl" in coming weeks. This is going to be an interesting week to observe in the stock.

I posted this commentary on the DNDN Yahoo discussion thread yesterday and I still stand by my comments:

My Yahoo comments

But what are the charts telling us about investor psychology in the shares?:

Daily Bigchart for DNDN

But even more telling is the weekly chart:

DNDN Weekly Bigchart

Now if you'll note on that weekly chart, everytime the weekly Stochastic has turned upward, it has led to major gains in the share price. Hence, my decision to speculate on having a chance to participate in a second run-up (having missed the first one .. sigh). There's just that much money at stake that it's hard to discern what the true valuation of this stock should be based upon the potential of the drug.

But what is the status of Provenge? Is it safe? Is it effective? Well, the FDA has ALREADY ruled that Provenge is safe by a UNANIMOUS vote of 17-0, so what's the problem with approving it?

FDA minutes from March meeting of advisory council:

FDA Advisory Council minutes discussing Provenge..

Pg. 370 is where they discuss effectiveness and the controversial NO votes were cast by 3 out of 4 panel members who have a conflict of interest and had to be granted waivers

And did Dr. Scher, one of the "Nays" on the FDA advisory committee, lie about his conflict of interest, for which he had to receive a waiver to be on that FDA advisory committee? The member who went to the extraordinary measures of actually writing a letter warning against approving Provenge, here is a list of his UNDISCLOSED conflicts of interest that should have been sufficient to deny his eligibility for being on that that committee to begin with? Decide for yourself:

Dr. Scher is on the Science Advisory Board of an investment fund with over $900 million under management. Why wasn't this disclosed on his COI waiver? And why wasn't it disclosed that Novecea is one of those portfolio companies? Fine, if he had disclosed this, then it could have been adjudicated. But it NEVER came up in the COI waiver letter.

Dr. Scher on Science Advisory board of investment fund

Summation of Dr. Scher's undisclosed Conflict of Interest

FDA confirms safety of Provenge

And read this logically based letter from another DNDN shareholder, to the FDA:

Open Letter from DNDN shareholder to FDA

I can't find any fault with the logic the author displays. Clearly the drug is efficacious because 34% of the patients who took Provenge are still alive, as compared to only 11% who took the placebo. And the FDA advisory committed UNANIMOUSLY agreed that Provenge is safe, so what's the problem with temporary approval of the drug, pending final results of the IMPACT study? If it's safe, let THE PATIENT make the choice of taking it or not.. If anything, it provides HOPE...

And what's even more interesting, and something that will likely receive some news coverage on Monday, is that a Cancer patients have spontaneously banded together to lobby congress to have the FDA approve the drug NOW, and not wait. That's unheard of, from my past experience. The group, ProvengeNow will be assembling on Capital Hill at 10 AM on Monday, and since I'm near-by, I think I'll try and be in attendance as well (with Laptop in hand because the Scrutinizer is addicted to his Level 2 market data). But it will be interesting to see if any Senators step out to speak with the demonstrators, and how the FDA will respond to future calls from Senators asking:

"If this drug has been unanimously deemed safe, and 75% of you deemed it effective, why are you holding up approving it? Get off your butts and approve the drug NOW!!! I have constituents WHO VOTE and I don't want them to die before the next election!!.."

That's how politics work.

This could get interesting...

ProvengeNow assembly on the Upper Senate Park on Capital Hill

ProvengeNow's mission statement

Now one more point. DNDN has been "flying solo" throughout this development process, apparently not being willing to partner with a big pharmaceutical. There has been some rumours flying through the CBOE in Chicago (where coincidentally the ASCO convention is occuring this weekend) that DNDN will arrive at a partnering agreement in order to ensure they have the political clout to get their drug onto the market first. Some shareholders have mentioned that DNDN fired their marketing staff recently as a cost-saving measure, presumably because they would not rely upon their partner firm to market and distribute the drug. If this is the case, presumably it could prove to be a tremendous driver for the stock price and the shorts will find themselves facing a problem.

In sum, owning DNDN is a high risk venture that could provide massive returns, or (at these current valuations) some time spent in Cramer's "House of Pain". But again, looking at the charts, I'm wagering I'll be hearing that sultry voice telling me I'm in the "House of Pleasure" sometime in coming weeks.

The Scrutinizer

The little company that might "own" the CDN and Music Streaming market.

There's this little company that's been struggling to get some respect in the VOD and Real Time Operating System markets. It's called Concurrent Computers (Nasdaq: CCUR). A few years back they purchased this company by the name of Everstream which specializes is audience tracking analytics for the cable industry (think automated Nielsen's Rating for on-demand content) that could assist advertisers to better target their audience for specific ad content.

Now, everyone has thought about CCUR as a VOD play.. they claim to have set the standard for VOD servers that the major cable companies will require for meeting the growing demand for VOD content. But for whatever reason, they haven't yet received much respect from the market place (probably due to the fact that they've had difficulty achieving profitability while they been restructuring and improving their product line).

Well, the old Scrutinizer must admit that he's been a "bag-holder" in this stock for almost a year now, with most of my shares under $2/share in price. I've just been laying in wait for the moment when the hidden value of this company would be recognized. I'm a firm believer that VOD, and all the advertising opportunities involved, will be the next major driver for advancing the internet (anyone remember the internet bubble back in 2000? I don't think you've seen anything yet).

Well, back to the story... It would seem that Everstream holds a series of extensive patents that pertain to both CDN and Music Streaming market places that date back to 1996, before any of these current CDN and music streaming players were even around. And furthermore, it would seem that CCUR and Everstream's lawyers believe that the BIG BOYS in the CDN field might just be violating most of them. But instead of calling in the "legal eagles" to form a IP posse (remember these guys are still a small fish in a big sea), they've opted to hold a strategic auction for these patents, with the provision that CCUR receives a license back to use them.

Read all about it here:

Concurrent Computers looks to auction off critical CDN and Music streaming patents

AND A MUST READ!!! Light Reading article related to CCUR's patents.

And view the company's recent presentation for FBR Capital Markets today:

CCUR presentation

Now what are these patents? Well.. take a look for yourself and decide if companies like AAPL, GOOG, MSFT, AKAM, INAP, and many others, might just be violating them. And while you're reviewing them, think about how much they might be worth to one of those 800 pound gorillas in the targeted ad market who is trying to lock in their "turf". I mean.. not only secure their turf, but force their competitors to license the patents from THEM!!

How humbling would that be?

So here are the patents.. You decide for yourself:

Programmed music on demand from the internet

Programmed music on demand from the internet #2

Method and system for using a communication network to supply targeted streaming advertising in interactive media

As a final note, some folks might recall that MSFT recently issued a statement that Linux providers might be violating over 230 patents held by Bill Gate's "Evil Empire". That's sent shivers (and outrage) through the Linux markets)...

Now just think what Billy "The Borg" Gates might be willing to pay for the ability to lock up music streaming and CDN delivering?

Hmmmm....

And if you still can't understand the significance of IP protections (read $$$$$$$!!!) for these markets, think about this.. MSFT recently paid $6 Billion for AdQuantive just so they could set themselves up to compete against GOOG pending acquisition of Double-Click. They both just bought themselves some "money trees", and both are looking to start plucking those $$$ bills and stuffing them into their pockets..

Were they smart buys?

Analysis of CND potential market

But one problem.. Those "money trees" happen to be growing on (Patented) land that Everstream holds the "deed" to. They staked a claim to that territory back in 1996, long before GOOG, or AdQuantive existed.

Now, if you're going to pay that kind of "bling" for CDN "Money Trees", how much are you going to be willing to pay for the deed and title to the land they are growing on? How much would you pay for patents on Music streaming?

And how much would you pay just to keep your most ferocious competitors from getting the deed to that land and taking a percentage from every dollar you pluck from your tree? Even if you think you can contest the deed, wouldn't it make sense to fork out some cash to improve your case in IP court?

Something to REALLY think about.. and given how the shares are responding over the past couple of days, I think some other folks are thinking about it too..

The Scrutinizer