Although the DOW closed modestly higher on Tuesday, the trend was lower for much of the day and the other major indices finished in the red. Headlines swirling Tuesday evening and Wednesday morning hinted that the record-setting rally of 2013 may be losing some steam, but the question is whether that means a plateau was hit and we're in for a period of sideways trading or whether concerns of sequestration and a still-sluggish global economy will push the markets lower again. World stocks indicated on Wednesday that the latter may be modestly true, but as we've discussed before, US markets don't typically follow trends, they set them - barring unforeseen developments from overseas that could heavily impact global markets.
Should investors go looking for reasons to support the argument that the rally has lost steam, discussions of Europe's hardly-recovering economy and the potential impacts of sequestration could lead the charge. Europe's continued woes have been largely ignored during the early-year rally, but could quickly become a factor over the near term, while sequestration may become a non-factor if Washington finally rallies itself and comes to an agreement. There's little doubt that voters are tired of the inaction and recent polls indicate that no side of the fence is immune to criticism over the current stalemate - and that might be enough to nudge these guys in the right direction, if they feel that their own political fate or the fate of their party is on the line.
So far, Washington in 2013 has been about as productive as A-Rod's playoff bat. So far that fact hasn't effected the markets at all, but another 'missed deadline' for a budget deal combined with massive cuts could set us down a notch or two.
As the major stories play out there are still plenty of individual stocks and stories to keep an eye on. Here are just a few of them for Wednesday, 13 March 2013 ...
Boeing Scores Big Win With Battery Fix And New Contract
The Boeing Company (BA) was creating a bit of buzz during the early hours on Wednesday after the FAA gave the go-ahead on Tuesday for the company to start testing its redesigned battery in the 787 Dreamliner. As previously noted, multiple Dreamliners experienced fires and other safety-related issues that resulted in emergency landings and the battery was found to be the likely culprit. The FAA approval to test the 'fix' is a bright sign for investors, the company and new and existing customers that the 787 could soon be airborne again. Although shares were initially hit when news of the Dreamliner woes circulated earlier in the year, the broad market rally lifted BA, too, as investors shrugged off the bad press as just growing pains for a next-generation aircraft. In fact, Boeing's stock has set new 52-week highs recently, even in light of the 787 grounding.
Also supporting the recent share price run was news that the company was close to signing a deal with Europe's Ryanair for up to $15 billion worth of its 737 aircraft. This deal not only adds to the company's bottom line, but it also reminds investors who may have shied away from the Boeing stock after the 787 dilemma that Boeing remains a global juggernaut - and there are little signs that this will change anytime soon.
Given the good news regarding the battery fix, it could be assumed that there is room for more upside over the near term, but as discussed during yesterday's write-up, it's not always a good idea to chase a stock higher. Day after day evidence presents itself that we may be at or approaching the peak of the 2013 rally and a pullback period of consolidation could be in store if the Street feels that we've hit a plateau. At some points investors will pull some profit from the table, especially given the uncertainty still existing in the global market. That could hurt - even if only temporarily - many of the companies whose share prices have recently approached or set new 52-week highs along the way.
The Boeing story is still a decent one to track for those entertaining the long term or retirement portfolio, but now may not be the time to go 'all in.' Funny enough, with the good news hitting the wires, investors should consider that some may play the 'sell the news' game and create a bit of short term volatility. That volatility, or an overall market pullback, may provide investors the chance to jump in at lower prices than the near 52-week-high levels that shares are currently trading.
It's good news that the battery woes look to be coming to an end, although it should always have been expected that a fix was forthcoming, and BA will be a hot story to watch moving forward.
Healthcare, Biotech, Pharmaceutical:
Spectrum Share Price In Line For A Haircut With Revised Guidance
Shares of Spectrum Pharmaceuticals (SPPI) were hammered during after hours trading on Tuesday and it's a near certainty that Wednesday's open will follow suit, given revised guidance from the company indicating a very sharp drop-off in Fusilev sales for the coming months and quarters. Although Fusilev sales had demonstrated robust growth during the past year or so due to the short supply of the generic competition, many predicted that generic competition would eventually eat away at the product's new found market share once supply caught up with demand. Fusilev revenue had leveled-off during the most recently reported, but company officials at the time still predicted overall growth for 2013, but did not specify where that growth would come from.
As per comments released on Tuesday evening via press release, no longer do company officials believe that any growth will come from Fusilev. In fact, revised guidance states that investors should expect a rough fifty to sixty percent cut in revenue, noting recent conversations with customers and other relevant parties. This guidance is a far cry from what investors heard merely weeks ago and vindicates the very heavy short interest that SPPI shares have carried for the better part of the last eighteen months.
Some investors may have seen this one coming ,as SPPI's share price dropped quickly after the last earnings release, most likely due to the lack of product-specific guidance through the year. Shares did rebound, however, and closed the day Tuesday at well over twelve bucks before collapsing after hours. The drastically-lowered guidance is going to draw huge criticism from investors who may feel betrayed by management and it's also very likely that the sharks will start circling and numerous law firms will issue press releases in search of a class action case against the company.
Such activity is routine, although most as these cases are fruitless, given investors should be well aware of the inherent risks of the sector and assume that bad news could hit the wire at any given time. That's why, in my opinion, investors should protect against such events by utilizing those trading shares along the way in order to bank at least some profits and turn out on house money - or better - in case things go sour. There will also be quite a bit of elation on the part of the shorts for the remainder of the week, which is fine - everyone enjoys patting themselves on the back once in a while. This has been a long time coming for them as Fusilev defied the odds, quarter after quarter, until now.
The bad press, a still-very-high short interest and possible lawsuit-related headlines will make SPPI a rough one to stomach over the short term, but at the end of the day the company has multiple revenue-generating products and a deep developmental pipeline, making it worth a look as a potential long term growth play after the dust from this latest drama settles - and once the share price receives its cut, the risk involved in an investment of SSPI will also decrease substantially.
Will trade with high volatility for a bit, but for now this is a hot story to watch for Wednesday.
SanuWave Ready To Roll With Full Trial Approval
SanuWave Health (SNWV) released news early on Wednesday morning that goes a long way to validating the company's comeback story while also emphasizing the potential of its shockwave therapies to play a significant role in the future treatment of chronic wounds. According to the above-linked press release, SanuWave has received full approval from the FDA to move forward with a Phase III trial measuring the effectiveness of its dermaPACE technology in the treatment of diabetic foot ulcers. As described earlier this month, dermaPACE operates utizling the company's Pulsed Acoustic Cellular Expression (PACE) technology, which treats damaged cells by sending 'shockwaves' their way and spurring them to heal and recovery themselves. This process is not unlike the process in which muscle tissue heals itself and recuperates after being beaten down during workout session with weights. Earlier trial results testing this 'shockwave therapy' in the treatment of diabetic foot ulcers were successful - in the eventual outcome - but did not meet the desired endpoint.
That is where the significance of Wedensday's announcement comes in. SanuWave worked with the FDA to appropriately design a new trial, and as stated by CEO Mr. Joseph Chiarelli, the new study was designed based on the successful portions of the last trial, which greatly enhances the chances for endpoint success this time around. Other key points regarding the design are highlighted in the pre-market release, and underscore the potential for success. Also of note, the fact that the FDA has granted approval of the Company's Investigational Device Exemption (IDE) Supplement to use the dermaPACE device during the upcoming trial helps to support a potential expedited review as the results roll in.
The contracted trial sites are also already in place and the first patient is expected to be enrolled within the coming quarter. The diabetes market is growing exponentially, as we've discussed before, and that could be a key reason why SanuWave decided to target the foot ulcer indication first, before looking to infiltrate the chronic wound market as a whole.
A new CEO is in place and a new trial is set to get underway, that makes SNWV as one to keep on the radar over the coming quarters. With the recovery story in place, investors may start paying attention again and volume has already increased enough to notice that a 'volume before price' play could be materializing. That said, there is still a ways to go before the light at the end of the tunnel approaches. One trial not meeting its endpoint will keep some investors skeptical until they see new and encouraging results and the standard concerns of the sector, of course, still apply here.
As Spectrum demonstrated above, it's a volatile sector, but often times investors who are not afraid to trade while also riding out the story for the long term could do very well. Given the momentum that may be built by Wednesday's news release, this is a story to watch over the coming months.
Explosive Trace Detection (ETD) / Global Defense:
Implant's Exposure In Global Security News Highlights Potential
The recent Implant Sciences (IMSC) share price pullback has made this company a stock to watch as its technology is positioned to enter the very lucrative and rapidly-growing ETD and global defense markets. As discussed earlier in the week, the pullback may have created another opportunity for investors to either enter into or accumulate a position in the stock in anticipation of future growth that could stem from the TSA approval of Quantum Sniffer B220 explosive trace detector for use in air cargo screening earlier this year. Recent news regarding the extension of a financing agreement with DMRJ Group lays a firmer foundation moving forward, too.
With the approval in place and the financing settled for now, the company and its investors will now be concentrating on the growth strategy. Noting the potential of the Quantum Sniffer technology, the latest edition of 'Government Security News (GSN)' features Implant Sciences as one of its cover stories. As mentioned in the associated press release, and true by all standards, "GSN is considered the authoritative publication in the government security marketplace." It's reach stretches from various levels of government and civilian enterprise embedded in the sector and the exposure given to Implant's TSA approval could augment the already-available public information.
It is still early in the post-approval phase, but Implant has made some key strides in ensuring it could be a big player in the future of explosive trace detection, air cargo screening and global defense for years to come. The GSN mention bumped volume slightly higher than the modest norm we've been accustomed to over the short term, but it's still not to the consistent point that would indicate mass awareness. A few notable orders resulting from the approval could easily change that.
With exposure growing and finances settled for the remainder of the year, IMSC is still one to keep on the radar.
Roundup: Global shares traded mostly in the red on Wednesday and early indications were that US markets would open modestly lower, too. Wednesday could be a key day in assessing whether investors are in for a period of sideways trading over the coming days and weeks, or whether the sluggish global economy and threats of sequestration are going to come into play and hamper the markets. Washington has already implemented many cutbacks and 'holds' on cash flows due to the uncertainty of this budget impasse, so the effects on the economy may already be felt, but won't be fully known until the numbers are tallied. Remember, a cutback in defense during the fourth calendar quarter hurt GDP numbers and many of the cutbacks agreed-to in DC in regards to sequestration also trim the defense budget - that's not to say that enough private growth can't offset that trend, but it is something to consider moving into the next fiscal quarter come April.
There's also the earnings warning from Wal-Mart (WMT) last month that investors may have forgotten about, but should still keep fresh on the back-burner. It's easy to become complacent when record highs are being set day after day, but it's best to entertain all angles of a story and invest (or sit on the sidelines) accordingly.
On a brighter note, Hostess found a buyer for its Twinkies and other brands, so everyone's favorite diabetes bombs will be back on shelves by the summer, according to the latest reports. Hopefully all of those who stockpiled these products when bankruptcy was announced either sold high or had a good Twinkie party or two. It was only a matter of time before we saw the Twinkie again.
Disclosure: Long IMSC, SNWV.
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