Trading Diary: Facts, figures, charts and fairy dust

Charts and numbers are what most financial advisors have on offer. But an investor’s keen observations and common sense often provide a better “tell” on stocks.

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WASHINGTON, September 7, 2017 – In our companion column today, we list the confusing and contradictory information that’s moving stocks and bonds up and down and back and forth on Wall Street. We’ve done little today, since our read on current market conditions is murky at best, even as we acknowledge the historical rottenness in American stock markets that occurs nearly every September.

Over many years of investing, the bulk of the trading services I consult focus on stock charts, earnings numbers, more numbers and various statistics. For all the work devoted to these techniques and technologies by advisors, financial gurus, economists, analysts, mathematicians, programmers and probably more than a few pointy-headed engineering types, none of these geniuses pay very much attention to what I’ve worked with since I jumped into the investing world back in 1979: psychology and emotion.

I remain convinced that stock market moves are generally most strongly influenced by human psychology and emotion, aided and abetted in this century by computer algorithms that emulate both. Today, this simple fact is more crucial than ever, given the proliferation of correct and incorrect information (aka, “fake news”) that moves in waves across the Internet each day, like some massive, aimless herd of wildebeests in search of fresh grass.

To some extent, technical analysts and their cavalcade of charts – formerly known to previous generations as tea leaves – are useful in gauging psychology and emotion, but mostly after the fact.


To some extent as well, fact-based fundamental analysis will ultimately regurgitate the numbers that allow analysts and investors to discover what’s a good deal in the stock market and what is not.

But even when all technical and fundamental systems are “Go,” all this number crunching will take you only so far. Witness the wild hits and misses we see every day on reasonably well-respected sites like Seeking Alpha, where reams of investor verbiage and analysis unite with a fusillade of detailed yet meaningless charts. Some of this stuff is useful, but most of it is wasted verbiage.

Most investors only have time for an executive summary of such stuff. But most writers and analysts contributing to Seeking Alpha remind me of computer engineers I used to work with in the 1980s. As a technical writer (essentially before there actually was such a profession), I’d fight with these guys every day, battling bravely to create user manuals for non-engineer end users who wanted computers and programs to work for them without needing to know every detail.

But my engineers always fought me, insisting that each manual should begin with a lengthy chapter on “Theory of Operation,” something I knew that end users didn’t really give a rat’s derrière about. They just wanted to know what happens when you hit the return key.

It’s the same thing with the kind of exhaustive – and essentially useless – analysis I see in Seeking Alpha as well as in many investment reports, ranging from Credit Suisse analysts to heaven knows who else. It’s overkill.

Technical analysis and fundamental analysis will narrow down any universe of stocks to the few stocks that are truly investible. But in the end, you still have to make an educated guess as to which product, new drug, or technology is going to end up flying off the shelves.

Let’s try to keep this in mind this month as we confront another extraordinarily treacherous September, that graveyard of annual returns that routinely slaughters an investor’s current holdings, while (often but not always) providing big year-end buying opportunities for those investors who’ve held a little cash in the till for just such moments.

Trading Diary

We’ve sold off a couple of tiny, mildly profitable, but weakening positions in our main portfolio today, including shares of the Schwab Midcap ETF (symbol: SCHM) and a few extremely volatile shares of cut-price retailer Dollar Tree (DLTR). We’re letting everything else ride today as markets sort out the veritable plethora of news items that may or may not influence markets in the days and weeks ahead.


Read also: Thursday stocks: Yo-yo market back again as financials sag


On impulse last night, when our brokerage made shares from a secondary issue of risky biotech firm Insmed, Inc. (INSM), we put in for 100 shares. They priced up, coming in at $28.50 per share, influenced by a massive, news-driven boost in the share price (a “gap up”) from roughly $12 per share to a high of $31.39.

This huge share price jump in a company that to our knowledge has never made a profit (true of a great many young biopharmas, BTW) clearly prompted the sudden share offering to take advantage of the move.

Why such a price increase? Here’s a reasonably readable excerpt from a briefing.com report:

“Insmed (INSM) is surging today (+123%) on positive clinical news for its lead product candidate. In case you’re not familiar, Insmed is a biopharma focused on rare diseases. Its lead product candidate is ALIS for adult patients with treatment refractory NTM lung disease caused by MAC, which is a rare and often chronic infection that is capable of causing irreversible lung damage and can be fatal. Insmed is not aware of any approved inhaled therapies specifically indicated for refractory NTM lung disease caused by MAC in North America, Japan or Europe.

“What makes ALIS is that it’s an inhaled, once daily formulation of amikacin, which is an established drug that has activity against a variety of NTM. The problem is that its use is limited by the need to administer it intravenously and by toxicity to hearing, balance, and kidney function. Insmed’s technology uses charge neutral liposomes to deliver amikacin directly to the lung where it is taken up by the lung macrophages where the NTM infection resides. This prolongs the release of amikacin in the lungs while minimizing systemic exposure thereby offering the potential for decreased systemic toxicities.

“ALIS’s ability to deliver high levels of amikacin directly to the lung distinguishes it from intravenous amikacin. ALIS is administered once daily using an optimized, investigational eFlow Nebulizer System manufactured by PARI Pharma, a portable aerosol delivery system….

“The company believes this marks an important advance in its quest to bring a safe and effective treatment to patients who suffer from NTM lung disease caused by MAC. This represents the first ever global Phase 3 study in patients with NTM, a rare, progressive and destructive infection that is associated with irreversible lung damage and increased rates of mortality….

“In sum, the stock is surging today on the news so investors are clearly happy with the results. Based on the size of the move, it appears this result caught investors off guard. Looking ahead, Insmed plans to pursue accelerated approval of ALIS under subpart H, which will be reviewed by the Division of Anti-Infective Products. The FDA previously granted this product breakthrough therapy designation and fast track status and designated ALIS as a qualified infectious disease product (QIDP).”

(Note: You must register with briefing.com to read this and other reports on the site. Registration is free, but you might be inviting some extra emails.)

INSM is currently up around two points on the day. Fingers crossed. It’s a crap shoot, but given the above info, one worth hanging onto for at least a bit, which is what our discount brokerage makes us do.

Aside from this tiny bit of potential excitement that showed up without warning, we’re sitting back today as we pause to think about revising our strategy for the 4th quarter of 2017. As we do so, FWIW, let’s all ponder the following rather cynical comment on current stock market activity we spotted on ZeroHedge, the most cynical investing site we regularly consult:

Always buy the dip using indexes, when the dip is permitted to happen by the ministry of plenty.

I 100% guarantee that you will make money and the indexes will go back up.

The stock market is completely artificial. It isn’t even a market at all.

It’s a bulletin board of prices rigged ever higher so that our entire financial system can succeed.

Think about it. $30 Trillion in wealth is based on the abstract value of future expectations. It’s fairy dust.

 

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