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1:20 pm (EST)
The bears are trying to end the week with an explanation point as the market continues to drift lower after today’s big unemployment report. The government said private employers added 83,000 jobs last month, which was fewer than the 112,000 Wall Street had expected. Overall, 125,000 workers lost their jobs last month, worse than the 110,000 forecast and 225,000 census jobs were cut in June.
In other economic news, Factory Orders for May were down 1.4% which was steeper than the 0.6% drop that had been forecast.
As a result, the bears are going for their 7th win in-a-row on the Dow and the index is currently down by 90 points to 9,643. The S&P 500 is off by 9 to 1,018 while the Nasdaq is down 18 points to 2,083. Remember, we have Dow 9,500; S&P 975; and Nasdaq 2,050 as our next downside targets…
Apple (AAPL, $245.19, down $3.29) is trading lower today after saying it was “stunned” to find that its iPhone 4 was having issues. Apparently, the company has been using a “totally wrong” formula for years and the snafu centers around how many bars of signal strength users are getting by how they hold the smartphone.
We would love to trade options on Apple but the premiums are a bit rich until they do a stock-split. We shy away from playing options on stocks over $100 but we wouldn’t be surprised if the company does do a 3-for-2 or 2-for-1 split down the road or on their next earnings announcement. They need to.
Dendreon (DNDN, $28.85, down $1.28) took a hit yesterday and is down again today 4%. The U.S. Medicare program said late Wednesday that it was reviewing the company’s prostate cancer drug, Provenge, to decide whether they are going to cover it.
The stock was down big-time in after-hours Wednesday night to $25 but managed to hold the $28 level yesterday when trading officially began. Shares closed above $30 and might be looking to test yesterday lows.
Dendreon won approval for Provenge in late April and watched its shares surge from $40 to a high of $57 following the news. We were able to get our subscribers into a Dendreon call option trade before this major announcement and they walked away with an 80% return in less than a week.
Of course, many of you know we have followed this company for a few years and we brought it to your attention when shares were under $5. From the Peter Lynch days, that was a 10-bagger from the low to the highs. Shares stayed in the $40′s for much of May but hovered in the upper $30′s until this week.
So, is Dendreon a “Buy” at these levels or will the stock head back to the lower $20′s making it a “Sell” recommendation?
The reason this is such a big issue is because Medicare coverage could help make the product successful, while a denial could sharply hit sales.
Provenge has a hefty price tag and costs over $90,000 for the full treatment of three infusions. Medicare & Medicaid will have to pony up 80% of that if Provenge is covered. Now you can see where this is going (or isn’t?). Dendreon can thank the government.
It is too early to make an informed investment decision because a proposed ruling isn’t due until March, 2011. Then, a final decision would be decided by June 2011. However, as much as we love the stock, this could create significant uncertainty for Dendreon and it could be a possible put option trade. It’s too early to tell but shares could retreat to the low $20’s.
The market will be closed on Monday but we will do our Weekly Wrap sometime during the day. We have a lot of good news going on in the portfolio so we wanted to give you one last update before the weekend. We will also be able to give you a few more details on Auto-Trading and our new “How to Trade Options on Momentum Stocks” option trading manual.
Have a great weekend, everybody!
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