understanding the psychology of behavior

I trade GOOG now and again, and today seemed very odd toward the close. About 20 minutes before the close, GOOG just went down on higher volume and no news. Could be a sign of what may happen to the market tomorrow. I’m not expecting any major decline, but I have been waiting for a correction. (I was not expecting such a run up into the elections… looks like we may see a ’sell the news’ situation.)

Back to GOOG… depending on market weakness and GOOG’s weakness, a good buying opportunity may find itself at the 20 SMA. (Highend support -at 475- did not break yet, but after watching the close, it may.)

I must say these past couple of days DNDN has impressed me. They were able to withstand a ‘neutral’ rating from Bank of America on Thursday, and today (11/03/06) out of no where, starting around 3:15pm volume increased and DNDN closed with strength. This also left the weekly chart in a confirmed breakout mode. nice.

ASPV is obviously hated by wall street. And if investors are to think of the street as a predictive tool, currently the market is telling us ASPV’s earnings will decline by some 20% over the next 3 years, assuming ASPV does 3.04 for 2006. The recent quarter pretty much goes against this thought. Which should mean the market is not being efficient pricing ASPV, hence is under a heavy discount.

Now, the discount also means the street has lost all faith in management (as I pointed out before), and -more importantly- ASPV’s business model. This is bad. This means ASPV will not see its proper valuation until the model is proven. And listening to the recent CC, management does not seem eager enough to make a deal happen. (Or at least promote their company enough to make them a viable entity to Pharma/Biotechs.)

IMO, this is what management needs to do, in order for the market to begin valuing the company properly: (numbered sequencially as to the most effective means of increasing shareholder value)

1. Make a deal with large Pharma/Biotech using their equity. Offer an equity stake (maybe at a discount to market value for insentive) for the rights to the particular drug. This way ASPV pays for the trials, but the big boys can benefit as ASPV benefits via equity. (IMO, this will give a sense of validation to their model, especially if equity stakes are taken by the partner. This also will allow high margins during off label use because the majority of risk is on ASPV. The expenses are with ASPV, if it fails the stock declines, but the pharma would of bought it at a discount and could get out at breakeven or so. And if the trial is good enough to market the new use, the big pharma just sits back and observes their asset appreciation, as well as free money via royalty payments.)

2. Offer a payment for promising drugs. Similar to how big pharmas by milestone payments to smaller ones as trial progress… however this will be the smaller paying the bigger as the trial progresses. And of course ASPV will pick up the tab for the trial expenses. (This will substantially increase ASPV’s expenses, as all of the risk is with ASPV, but it is very enticing to the big boys. This should also allow high margin royalty revenue as ASPV is taking all the risk. More importantly this would prove their model is sustainable.)

3. Go private. Wall Street lost all faith, and with out proof of a sustainable model, ASPV will never get appreciated by the street. As such, ASPV should look for a fresh start. Tell the street they think the stock is undervalued by offering a proper management buyout to take the company private. (While private they can work on getting other deals to prove their model, and take it public again later. As for current investors we can get an exit substancially higher from current stock levels… i’m thinking between 25-30, at the very least.)

They have the cash and dilution ability to execute both models, but it depend on whether management has the ability to sell their viability to the big boys. Right now they are doing a SHIT job at selling themselves to the big boys.

I would rather see the first option attempted, but it adds a risk element to the partner. The second option has no risk to the partner, and has a cost containment element to the partner that is very enticing. The partner will be begging to deal with ASPV, proving sustainability and increase equity. (A position ASPV should be it NOW!) The money ASPV will/could lose in expenses, could easily gain back via stock appreciation.

Management MUST put on their thinking caps and get moving.

I’ve decided to hold on to my shares of ASPV. (thanks drtkw and billwag_98)

There was a cash generation of $35M (in ONE quarter)!!! And management tried to explain why deals did not develop, I guess to the best of their ability. But nothing management said is making me hold on to the shares (i still don’t trust them, they hae to deliver first)… its their numbers.

The cash generation, and health of the balance sheet has improved. Accounts Receivables were down yr-over-yr signaling better health, and the increase in cash simply can not be ignored.

I will hold a little longer, but i will sell if a new deal is not worked out by mid 2007. They need somewhere in the range of 2 years or so to enter a late stage drug in phase III, then market it before CellCept gets hit with generic competition. (I don’t expect another pharma to allow ASPV to greatly profit from off-label use of a drug a Roche is doing. The deals will simply not be this sweet… and if management is looking for such a deal, they will have a never ending search. They will have to use their cash to purchase those ‘off-label’ rights, and maintain a nice margin. And if this is the case, then they don’t need 2 yrs… maybe less then a year before CellCept patent expires.)

IMO, these picks need a looking… but i plan on playing them after the market corrects.

COF - Although the inverted yield is worry some for financials, I like COF’s growth and valuation. The chart is so-so for now.

BRCM - The options mess created a great discount to a really good company. Its businesses are all growing.  There was also a report out yesterday concerning a ramp up in ‘chip’ growth in 2008 due to China demand.  But the chart looks weak.

MDRX - I’m a fan, read the posts from the tag on it, and u’ll see why.

DNDN - Despite the market correction, DNDN broke from its down trend and the chart looks nice and orderly.  Don’t see it breaking 4.70 again, unless some bad news enters the picture.

GERN - Still in its very early stages. Has a collaboration with MRK, where MRK bought equity in the stock.  Could be a buyout, but if not, its chart also looks nice upon a pull back.

I’m sure others will come up, but this is where my thought are currently… liking MDRX, BRCM and DNDN the best, after a correction, for now.

IMO, yesterday was the start of the market correction.  The longer it waits, the quicker and harder it falls.  The short-term T-note yields are worring me.  They are far too high, while the 10yr is far too low.  The Bond market is saying a slow down is coming, and rate cuts are in the works. (OR the decline in housing alone has created this inverted curve. I was never under the impression one large segment of the economy can have such an effect on rates, but right now this is what it looks like.)

“Hezbollah’s leader has confirmed that indirect talks with Israel on a prisoner exchange are under way, describing them as “serious”.” (article)

If you were to look at history, there are plenty of examples where former terrorist groups have done a 180 and started to incorporate themselves in general society… the IRA (for the most part) and Libya are two that quickly come to mind.  Hence, Hezbollah potentially can be no different.

HOWEVER, the one thing i found to be interesting when observing fanatical Islamic groups is that when the leaders of these organizations realize the only way to make progress is not through arms, but through negotiations, there is a break by some of the members.  These members later maintain the hard line military approach, that has gotten the no where. Case in point… Hamas.

If people would just bother looking at history for answers, we would all be better off. History dictates negotiations and talk far exceed the threat of power. 

note: With the above stated, don’t think i’m some liberal hippie… i’m not. The threat of annihilation is a big one, and should be used to control the morons who can’t learn from history.

to a more civil way of life, with more right granted to the individual… i hope so.

“A Chinese court has thrown out a guilty verdict against Chen Guangcheng, an activist who raised concerns about forced abortions. ” (article)

IMO, their next step is to free those found guilty of speaking freely.