Analysis, Perspective, Trading Strategy
At the Edge of Chaos: Focus on Individual Stocks. Monitor Each Position Separately.
Duarte in the Money Options
It doesn’t feel like it on the surface, but the next month
to six weeks could be a major nail biter for investors. But as the
action during last week’s Quadruple Witching options expiration showed,
wide price swings are possible, and indeed may be likely.
Stocks certainly seem to want to continue to trudge higher, and may
certainly do so in the short term due primarily to the Federal Reserve
and other global central banks continuing to input money into the banking
system via the bond market. But, as I noted last week, bond yields
may be in a stealth uptrend which may be confirmed in the not too distant
future with the key being what happens if yields breach the 1% mark
on the U.S. Ten Year note (TNX). So with less than two weeks left in
2020 regardless of what could be serial new highs in stocks responsible
investors will have to balance the ongoing potential rally in stocks
with the knowledge that early in 2021 there may be a price reckoning
As a result, this market is more about managing current positions
than taking big risks. At the same time, it’s also important to take
advantage of any new opportunities that arise as long as one is willing
to consider any new additions to the portfolio as potentially short-term
So, here is what we know:
- The COVID-19 vaccine rollout has started but it’s too early to
have detailed knowledge of the process, much less results
- The Fed will keep printing money and buying bonds
- Bothe the Chinese central bank and the ECB will continue to join
the Fed’s QE efforts
- In essentially a zero-interest rate environment, stocks make sense
since there is no other way to make money but this is not without
risk and the willingness to trade for the short term is important
- Political issues may or may not be on the way to resolution. This
remains a wildcard.
- The global economy remains in an uncertain place due to the COVID-19
pandemic and the sporadic regional shutdowns of cities
- The bond market is being underestimated by investors and could
prove to be very troublesome
Specifically, if the U.S. Ten Year Note yield (TNX) crosses above
the 1% yield area aggressively and embarks on an aggressive uptrend,
the potential, but not necessarily a guarantee, of a severe decline
in stocks must be entertained.
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Acadia Pharmaceuticals Finds Success in Troubling Conditions
I recently recommended purchasing shares of Acadia Pharmaceuticals
(NSDQ: ACAD), a San Diego based biotechnology company specializing
in the treatment of psychoses. Certainly, the toughest nut to crack
in central nervous system conditions is Alzheimer’s disease, along
with the psychosis and dysfunctional state which can develop in the
latter stages. But interestingly and fortunately for its investors,
Alzheimer’s disease is not Acadia’s focus.
In fact, Acadia has positioned itself in a relatively unoccupied
niche, that of treating secondary psychoses related to other chronic
and otherwise irreversible conditions. For example, its NUPLAZID drug
is doing about $120 million in annual sales, with a 27% year over year
growth rate and proving to be successful in the psychosis condition
that can develop in patients with Parkinson’s disease.
Moreover, the company’s next focus is the treatment of dementia related
psychoses via its still unapproved pimavanserin drug. If successful
in its current FDA review, pimavanserin could be approved by April
2021. Meanwhile the company is working on broadening the number of
indications for NUPLAZID.
From a technical standpoint, the stock is clearly under accumulation
with Accumulation Distribution (ADI) and On Balance Volume (OBV) turning
up nicely over the past couple of weeks. Even better is the fact that
a move above the $57-$58 area could lead the stock significantly higher
if the momentum crowd jumps in over the next couple of weeks.
The bottom line is that ACAD seems to be an above average short to
intermediate term opportunity barring a negative market event.
Find out what other opportunities are presenting themselves in this
market with FREE trial to Joe Duarte in the Money Options.com. Click here .
Market Breadth Continues to Seesaw Higher
The New York Stock Exchange Advance Decline line (NYAD) continues
to seesaw higher, once again delivering several new highs in the past
few days. The rate of rise has slowed some and the ROC indicator is
moving lower which confirms at least a temporary loss of momentum.
A break below 0 on ROC could signal further weakness.
Moreover, the RSI for NYAD has broken below 70 after being overbought
for a couple of weeks. Thus, I remain concerned about the market’s
vulnerability in the short term, although in the current climate it
does not pay to be either an aggressive buyer or seller.
The action in the S & P 500 (SPX) is similar to what NYAD is
showing us. Indeed, as I said last week the market looks ready to take
The Nasdaq 100 index (NDX) has been the strongest area of the market
of late, but it too seems to be losing a bit of momentum. Breaks below
the 20 and 50 day moving averages could lead to accelerated selling.
Focus on Individual Stocks. Monitor Each Position Separately.
The combination of a bullish seasonal period, a very loose Federal
Reserve, and political uncertainty is a difficult combination to manage
As a result, I continue to expect choppy and volatile trading and
continue to suggest that bit of a hedge may not be a bad idea to go
along with some profit taking as well as the removal of any position
from the portfolio which is not showing relative strength.
Still, at the end of the day, it’s all about how any stock one owns
is doing against the market. So if the market rolls over, but our stocks
are holding up, we will hold onto them until they get stopped out.
For more on how to deal with the current market checkout my latest
Your Daily Five video here .
Joe Duarte is a former money manager, an active trader and a widely
recognized independent stock market analyst since 1987. He is author
of eight investment books, including the best sellingTrading
Options for Dummies, rated a TOP
Options Book for 2018 by Benzinga.com - now in its third edition, The
Everything Investing in your 20s and 30s and six other trading
Meanwhile, the U.S. Ten Year note yield (TNX) is trading in a The
Everything Investing in your 20s & 30s at Amazon and The
Everything Investing in your 20s & 30s at Barnes and Noble.
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