BIOTECH

A 2011 study notes the success rate in bringing new medicines to market in the past six years is only half of what it had been previously. Biotech drugs are twice more likely to gain approval than more traditional chemical drugs.

 

Moving from early stage Phase I clinical trials to FDA approval is roughly 10%, about half in earlier years.

 

Approval applications were filed for 55% of the drugs that made it to Phase III testing, and 80% of those gained eventual approval; though only half were approved on initial review.

SOURCE:  BIOMEDTRACKER 

In summary: 10% of biotechs move from early stage Phase I clinical trials to FDA approval, and only half of those are approved on initial review.

 

BITCOIN

Gold is known as an alternative to paper currencies, can be traded anywhere in the world, and has a limited supply; the same is true for bitcoin. 

 

Bitcoin is minted in quantities determined by an algorithm.  Currently there are 11 million in circulation and the pre-determined algorithm will determine additional mints until a finite supply about 21 million of them are created and no more.

 

This digital virtual currency trading under the symbol BTC or XBT,  became operational in early 2009; it was created by an unknown person using the alias Satoshi Nakamoto.  In 2011 the value of one Bitcoin rapidly rose from about $0.30 to $32, before falling back down $2; at the time of this writing, bitcoin equals roughly $300 USD.  Bitcoins have acquired a reputation for use by criminals to purchase drugs, launder money, and gamble. Since its inception, Bitcoin exchanges and transaction processors have been hacked routinely with losses totaling millions of USD.

Bitcoin uses cryptography, it does not do so to protect the privacy of individuals; all transactions are logged in a public file called the blockchain. It is possible, although difficult, to associate bitcoin transactions with real-life identities.

To use bitcoins one is assigned one or more bitcoin addresses, and wallets allow a user to complete transactions between addresses by requesting an update to the blockchain, the public transaction log instrumental to Bitcoin. Wallets come in a variety of forms: apps for mobile devices and computers, hardware devices, and paper tokens.



Link to realtime chart:  http://bitcoinwisdom.com/

DARK POOLS

Dark pools of liquidity (dark liquidity, dark pools or black pools) is trading volume or liquidity not openly available to the retail investor.  They are commonly traded with large block trades (at least 10,000 shares/block) by financial institutions with algorithms using quantitative strategies throughout the day or at scheduled times.

The main advantage in using dark pools is to avoid market impact from the transparency of a large block trade.  Dark pools are run by private brokerages (Barclays, Citi, Credit Suisse, Fidelity, Goldman Sachs, Deutsche Bank, UBS to name a few) which operate under fewer regulatory and public disclosure requirements than public exchanges.  Trading on the dark pools accounts for 32% of trades in 2012 versus 26% in 2008.

RECOVERING FINANCIAL SECTOR

Banks, brokers and insurance companies make up almost 17% of the S&P 500, almost twice the level from 2009 and closing in on technology companies at 17.6% as of the end of July 2013.

Banks were the biggest American industry during the bull market that began in 2002, when the S&P 500 more than doubled and the economy expanded as much as 3.5% annually. In the late 1990s, financial firms grew to almost 19% of the index, coinciding with the largest stock rally in U.S. history and more than 4% average annual growth in gross domestic product (GDP).

The last time financial shares were the largest group in the S&P 500 was May 2008, four months before Lehman Brothers Holdings Inc. filed the largest bankruptcy in U.S. history.  It took more than $2 trillion of credit-related losses and write downs, after risky trading and home lending led to the credit crisis. About $11 trillion vanished from U.S. equity market value in the following year and a half.

VIX

VIX is a weighted average of the out-of-the-money SPX options in the first two expirations, and adjusted to simulate the volatility of an option with 30 days to expiration.  It is never wrong since it is a calculation using actual bid/ask prices of these SPX options. 

If the VIX is going up, then the out-of-the-money options in the calculation are rising from trader’s accumulation (demand); likewise, the VIX drops from trader’s distribution (supply).

If the market is moving lower, but traders are not bidding up the out-of-the-money options (VIX doesn’t rise), then traders are already hedged, or are less leveraged, and the extent of a sell-off is not perceived as intimidating to them.

Use the VIX to complement your trading strategies rather than to predict market direction.  Compare the change to the past few weeks to gauge the overall fear or complacency in the market.  If the VIX is rising above the past trend, then uncertainty is increasing in the market over what may happen in the near term future; likewise, if the VIX is falling below the past trend, then complacency is increasing and option premiums are relatively low.

U.S. BANKRUPTCY

U.S. bankruptcy is imposed by a court order, often initiated by the debtor that cannot repay the debt it owes to creditors.

Corporations and other business forms file under Chapters 7 or 11.  Complete loss of Equity holder's Investment results in Chapter 7 and can result in Chapter 11 proceedings.

The most common types of personal bankruptcy for individuals are Chapter 7 and Chapter 13. As much as 65% of all U.S. consumer bankruptcy filings are Chapter 7 cases.

There are six types (chapters) of bankruptcy under the Bankruptcy Code, located at Title 11 of the United States Code:

• Chapter 7: basic liquidation for individuals and businesses; also known as straight bankruptcy; it is the simplest and quickest form of bankruptcy available.
• Chapter 9: municipal bankruptcy; a federal mechanism for the resolution of municipal debts.
• Chapter 11: rehabilitation or reorganization, used primarily by business debtors, but sometimes by individuals with substantial debts and assets; known as corporate bankruptcy, it is a form of corporate financial reorganization which typically allows companies to continue to function while they follow debt repayment plans.
• Chapter 12: rehabilitation for family farmers and fishermen.
• Chapter 13: rehabilitation with a payment plan for individuals with a regular source of income; enables individuals with regular income to develop a plan to repay all or part of their debts; also known as Wage Earner Bankruptcy.
• Chapter 15: ancillary and other international cases; provides a mechanism for dealing with bankruptcy debtors and helps foreign debtors to clear debts.

PERMANENT OPEN MARKET OPERATIONS (POMO)

The Fed influences short term interest rates by controlling the interbank lending rate known as the Fed funds rate.  Through its Open Market Operations (OMO), it purchases (adds reserves) and sells (drains reserves) short term repurchase agreements (RPs) with dealers in Treasuries by the Trading Desk of the Federal Reserve Bank of New York to maintain just enough reserves to the banking system to meet the target rate demand.

Permanent Fed reserve additions/drains (POMO) is just one of three tools used by the Federal Reserve to implement monetary policy.  The other two are the discount rate and reserve requirements. Open market operations are conducted by the Federal Open Market Committee (FOMC), while the discount rate and reserve requirements are set by the Federal Reserve's board of governors.

SECULAR TREND IMPACT BY BABY BOOMERS

A baby boomer is a person born during the 19 year post-World War II baby boom period between the years 1946 and 1964.  This generation of baby boomers began celebrating 65+ years during 2010, and over the next 15 years, as a group, they are the wealthiest, most active, and most physically fit generation.  They were also the generation that received peak levels of income, therefore they could reap the benefits of abundant levels of food, apparel, retirement programs, and sometimes even "midlife crisis" products.

It is important for investors to Identify secular trends, over a long-term time frame, usually at least 10 years, not just short-term trends, if they want to succeed.

Examples of secular trends include Bull and Bear Market Cycles, an aging population (which will tend to have different spending and savings habits than a younger population), the expansion of a particular technology (such as the Internet) and heavy reliance on certain commodities (like oil).

Consumer spending makes up over 70% of Gross Domestic Product (GDP) which is a broad measure of U.S. economic activity.  The aging generation of baby boomers has started to influence GDP spending habits and will impact the growth of specific sectors of GDP over the next 15 years.

 

SMALL CAP MONTHLY PERFORMANCE

Below represents Small Caps average monthly performance the past 84 years

AVERAGE MONTHLY S&P 500 RETURNS

source:
 http://www.moneychimp.com/features/monthly_returns.htm

TRADING CURBS, HALTS, AND PAUSES

A trading curb also known as a circuit breaker, is a point at which a stock market will stop trading for a period of time in response to substantial drops in value.

At the start of each quarter, the NYSE sets three circuit breaker levels at levels of 10%, 20%, and 30% of the average closing price of the Dow Jones Industrial Average for the month preceding the start of the quarter, rounded to the nearest 50-point interval. As of the fourth quarter of 2012, these levels are 1,350 points, 2,700 points, and 4,050 points respectively. Depending on the point drop that happens and the time of day when it happens, different actions occur automatically. A one hour halt is triggered at 10%, two hour halt at 20%, and market closes at 30%.

Trading halts usually occur when a publicly traded company is going to release significant news about itself. The halt in trading for the affected security gives investors time to review the news and assess its impact. Another situation in which a trading halt might occur is when the exchange is uncertain "whether the security continues to meet the market’s listing standards."

Also, there are "trading pauses", which are defined as, under NASDAQ, "if a security is subject to a Trading Pause, the Pause Threshold Price field will contain the reference threshold price that deviates 10% from a print on the Consolidated Tape that is last sale eligible as compared to every print in that security on a rolling five (5) minute basis".

 

 

http://www.nasdaqtrader.com/Trader.aspx?id=TradeHalts