Too Far, Too Fast? Or Just Getting Started?

While it is still too early to say with certainty that the market really is beginning another leg up (versus “topping out”), it is hard to call the current trend in the overall market anything but “up” (and up with a vengeance, no doubt!).

Of course, as discussed in the April issue, the risk from here is that if the rally fails, the charts of virtually all of the major indices – and a great many of the “big name” stocks that have been leading the rally, as well – will suddenly be showing us double- (and, in some cases, triple-) tops, and though the appearance of such patterns in no way guarantees that the market will head lower, history does tell us that such patterns often do end up marking “the end of the party,” and so, now that a few of the indices have broken into new record-high territory, it will be especially important to see if the other indices end up joining the fun… or if the breakouts will prove to be “fake outs” just ahead of what history also suggests could be a sizable market tumble if the rally fails from here.

For now, I remain comfortable with the way the newsletter’s Portfolios are positioned (we are sitting on a roughly 20% cash position in the Model Portfolio, for example, though you are naturally encouraged to aim for whatever cash level allows you to sleep most easily in the current market environment), but as just mentioned, I believe we are sitting at a very critical juncture in the market cycle, and so, depending on how the next three weeks go, the odds are good that I will have a much stronger stance about the health of the overall market by the time the May issue goes to press a little over three weeks from now.

Many of our recommended stocks are acting well these days (and Apple’s gains today are certainly helping lift the major indices and improve sentiment towards all of the other stocks and sectors that feed into Apple’s ecosystem as well), and, as discussed a number of times in the past, part of why I am comfortable sitting on such a sizable chunk of cash at the moment (we are usually close to 100% invested in the Model Portfolio, for example) is that a) it is allowing me to sleep easily at night knowing I have significant portion of the Portfolio “not at risk,” and b) given where we are at in the market cycle, if the market does head a little higher from here, it almost certainly means that it will also be heading a lot higher… and so, even if we are not fully invested, we should still wind up with some very nice returns in our Portfolios despite the lower risk profile we are currently operating under.

Having said all of that, those of you who are still working on building up to being “fully” invested (whether than means 50%, 80%, or 100% in your particular situation) are encouraged to focus first on those stocks that you are most interested in owning “for the long-haul,” and then, within that basket of stocks, look for the ones that are showing the best relative strength but are also still trading under their buy limits!

As you know, I re-evaluate all of the buy limits every month when each new issue comes out, and though you are naturally welcome to approach your investments however you see fit, I would rather see you wait for me to possibly raise the buy limits of a stock you’re interested in three weeks from now than have you “chase” it above the buy limits now, only to find out that the market could be in free fall by the time the May issue goes to press (in other words, practice patience with the likes of Apple, Catasys, Disney, and any of the others that are currently flirting with their buy limits!).

Finally, for those of you who are brand new to the newsletter and may not have gone back to look at the March issue yet, I want to encourage you to go take a look at it (“Our Latest Thoughts” –> Nate’s Notes Newsletter” in the pull-down menu on the website) since it offers some advice about how to go about investing in the current market environment if the idea of buying stocks “that are already up so much” is one that you find intimidating (and perhaps even paralyzing).

MannKind

As discussed a number of times over the past several months, I believe we are finally entering the chapter in the story when, at least based on the historical patterns of adoption of new techniques for managing diabetes, we should finally see Afrezza starting to gain some traction in the medical community… and, as I have mentioned I would be doing a few times since the beginning of the year, I still plan on using the upcoming May issue as a chance to reflect on how things are going with the product (and then, IF WARRANTED, make changes in my outlook for the stock (and company in general) based on we see at that point in time).

As it stands, along with three more Fridays’ worth of script reports between now and when the May issue is scheduled to come out (see below – in case you hadn’t noticed before, the publication date for the next issue is always listed at the bottom of each Inter-Issue Commentary), we will also be hearing from the company as part of its upcoming earnings call (which will take place next Tuesday morning before the market opens – if you are so inclined, you can listen online via a link on the company’s website), and keeping our ears tuned into anything that management might say at the company’s annual shareholder meeting on May 14th (no, I am not attending, but I’m sure there will be plenty of scuttlebutt reported online for us to sink our teeth into)… and I am very much looking forward to seeing what additional pieces of the puzzle (if any) may fall into place around the story over the next three weeks.

In the the meantime, in order to help folks stay focused on the long-term and stick to our game plan of only making trades once a month when the main issue comes out, please note that, barring the release of unexpected bad news that actually changes the fundamentals of the story (i.e. an actual “material event” that might require immediate action our our part, not just a move in the stock price in response to the numbers) as part of the earnings call, I do not plan on taking any actions or putting anything out for subscribers until the May issue.

Having said that, however, I know many of you are growing weary of (and/or impatient with) the story, and so I want to remind you ahead of the earnings call that if you find something about the call (or the stock’s response to it) that makes you decide you’d rather start moving money out of your position sooner rather than later, there is no need to wait for my assessment when it comes out a little over three weeks from now – as you’ve seen me write many times, “peace of mind” is one of the key ingredients of successful investing, and especially with so many of the other stocks in the newsletter acting well these days, if you see or hear something in the call that makes you decide “enough is enough,” you are strongly encouraged to do whatever you need to do to personally feel better about your position rather than wait to see if I concur with your assessment!

Of course, there is also a chance that there could be good news released as part of Tuesday’s call, and so you are also reminded to think through your game plan for a rising stock price (as foreign as that concept might seem for those of you who have been involved with the story for several years now!) – would you be happy selling a portion of your position if the stock hits $2.50? $4? Or maybe you plan to “hold forever”?

Either way, the idea of maintaining peace of mind as a stock rises and a position size grows is just as important as knowing what you plan to do if a stock is falling, so please don’t forget to spend some time pondering your game plan for good news too, as it is probably even harder to make decisions about taking profits “in the heat of the moment” than it is to cut losses.

Also, please keep in mind that even if I do decide to start taking some of our MannKind chips off the table in the May issue (and I want to reiterate that this is still a very big “if” at this stage of the game – lots will depend on what we learn about DTC prescription fulfillment in the upcoming earnings call), I will be doing so via the same patient process we have used to scale-in to our position over the years (i.e. in small chunks on a regular basis) rather than all at once with a single large trade.

As those of you who follow the story on social media are all-too-aware, there is a massive campaign of negativity underway at the moment… and though we have seen this tactic deployed by folks hoping to scare retail investors out of the stock for several years now, I believe it is very significant that, whereas in the old days the negativity was almost always about Afrezza itself, now that the drug has proven itself to be the real deal, all of the efforts to create “fear, uncertainty, and doubt” (FUD) are instead focused on the management team at MannKind (which is really the only piece of the puzzle that is still open to attack).

No, there are no guarantees that the plan Castagna and his team have mapped out and are following will eventually bear fruit, but with daily volume in the stock having dried up to barely a million shares these days and negative sentiment running near an all-time high, the stage is certainly set for some nice fireworks to the upside IF it turns out much of the anger and frustration proves to be misplaced after all (and we’ll have a much better sense how things are actually going after seeing what sort of information actually comes to light over the next three weeks… so, stay tuned, eh?).

“Eyebrow Levels”

(used to help us gauge the overall health of the market*)