The Market Edge Market Summary
The market faced mixed signals last week as oil fell to the $50 area, while a mini melt down in the high-tech stocks created concerns over lofty earnings expectations. The decline in oil, to 1½ year lows, was offset by an up-tick in interest rates as the yield on the 10-year Treasury bond reached it's highest level since October 2006. Disappointing earnings outlooks from IBM, CSCO, AAPL and INTEL put pressure on the DJIA, but the negative effect was much greater at the NASDAQ. For the week, the DJIA gained 9 points (+0.08%) and closed at 12565.

Led by a 6.2% decline in AAPL's shares on Thursday, the NASDAQ tested it's 50-day moving average (2432) as the selloff spread to other areas of the market. The big four tech stocks mentioned above saw declines of between 5% to 10% which helped send the NASDAQ on it's way to a 36.21 point (-1.5%) decline on Thursday. For the week, the NASDAQ lost 51 points (-2.06%), snapping a four week win streak as it closed at 2451

Navarro's Big Economic Picture
Downer

A couple of down days does not a correction yet make. But clearly, there was some smart money starting to take some profits off the table. Contrary to a lot of analysts, I don’t see what’s happening to be an event motivated by changed fundamentals. There just hasn’t been that much new information aside from a few bearish earnings statements. Meanwhile, falling oil prices is fundamentally bullish. So, instead, this seems as yet just a technical correction. Let’s wait for some more data.

This Week's Market Movers

Aside for a couple of housing reports at the end of the week, this is a week largely devoid of government report market movers. That means quarterly earnings reports will continue to move the markets. Check out http://biz.yahoo.com/research/earncal/20070123.html for the calendar.

The International Scene - Technical Take

Our selection of international ETFs remain unchanged from last week and in a deteriorating condition from a buy for most ETFs.  Gold has fallen off the buy chart.  This is an aging bull snapshot.

*Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Jordan, Korea, Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey.

Vaino's Biotech Corner
A Spoonful of Sugar Helps the Medicine Go Down

Javelin Pharmaceuticals (JAV) is a tiny biotech focused on drug delivery. Their lead compound is Dyloject, an injectable form of pain-killer diclofenac. One of the problems with injecting diclofenac, a currently used non-steroidal antiinflamatory drug, is it’s just not very soluble in water; that is, you need to use a large volume to get it injected.  By mixing diclofenac with isopropyl-modified -cyclodextrin, a circular carbohydrate molecule composed of seven glucose units, Javelin is able to achieve a higher concentration of diclofenac. I should note I have some bias here, as cyclodextrins (along with adamantane) are among my very favorite molecules.

Higher concentration makes for less disruption in delivering the drug intra-muscularly, and speeds the time it takes the drug to start working. Faster relief from pain is never a bad thing. Dycloject has been submitted for regulatory review (MAA) in Europe. Unfortunately, the European regulatory body is less transparent than the FDA is setting dates when decisions such as this will be rendered. Dycloject is currently in a Phase 3 clinical trial in the US.

Last May the company began a Phase 3 study on an intranasal formulation of morphine. Again, the selling point here will be substantially faster absorption of the pain reliever. Anyone who has had any type of post-operative or dental pain can appreciate that minutes can pass like hours.

Javelin has also completed a Phase 2 study of use on intranasal ketamine for pain relief. This research was sponsored by the U.S. Department of Defense. If they can secure a contract in the future with the DOD it will mean big bucks, but this is in no way assured.

To be clear, these guys aren’t creating great new drugs, they’re taking well-known drugs and tweaking them a bit. While this approach doesn’t guarantee success, it’s always easier dealing with known drugs.

I think this is a good small company with some useful products. This stock is a bit on the illiquid side (average 10 day volume is just under 140K).  he pain market can be a tough nut to crack, but at $20B in annual sales it’s also a pretty big market. And remember, they’re not trying to introduce new drugs, just modified forms of existing drugs.  None of Javelin’s drugs is likely to be a blockbuster, but that’s ok. It’s a small company, with a market cap of $200M. News of approval in Europe, or a positive result from either of their Phase 3 clinical trials, will give the stock a nice spike.

This company has a weak balance sheet and will incur greater and greater expenses as they proceed with their two Phase 3 studies. With the stock near its all-time high, and with no possibility of revenue in the foreseeable future, it’s a safe bet there will be a follow-on offering of stock in the near future. My take is after the inevitable drop in price on this dilution will be a good time to buy.

“Any trader or investor who ignores the power of macroeconomics over the world’s
financial markets will, sooner or later, lose more than they should—and if they are
trading on margin, perhaps more than they have.”
 -- If It's Raining in Brazil, Buy Starbucks

The Market Edge Market Summary from www.marketedge.com 

CONTACT INFORMATION
Peter Navarro
Irvine, California USA
Email  |  Website

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