Dollar Could Put in for a Natural Rebound or Explosive Rally

Dollar Could Put in for a Natural Rebound or Explosive RallyFundamental Forecast for US Dollar: BullishA range of Fed officials stay out of the way of the September Taper timetable US Treasury auctions show a slow rebound in foreign interest, but total demand weakening A strong showing in US service sector activity and trade reinforces growth, Taper outlook Over the past week, the Dow Jones FXCM Dollar Index (ticker = USDollar) suffered its worst weekly decline since December 2011 and its longest string of daily losses since December 2010. Taken without context, that is a strong bearish sign. However, when we consider the fundamental and technical backdrop; this situation looks like a launching point for a dollar rally. The question is whether it will be a mild, natural correction or an explosive rally with genuine trend generation. That outcome will be determined by the progress found on the market’s primary fundamental concerns: the market’s appetite for risk and speculation surrounding the Fed’s ‘Taper’.To understand where the dollar will move heading forward, we have to establish the conditions under which it has arrived at its current position. The slide through this past week was extraordinary for both its consistency and intensity. Yet, the slide evolved without the burden of the benchmark currency’s primary fundamental themes. Looking for evidence of a rebound in risk appetite; the speculative-favorite S&P 500 meandered – trading on the lowest non-holiday volume since the September 2011 terrorist attack – while other measures of sentiment similarly floundered. As for Taper premiums, both speeches by Fed officials’ speeches and data on the eco! nomic docket reinforced the probability of a September move by the central bank.Without conviction, the kind of move that we have seen this past week would more appropriately be labeled a ‘natural correction’. Though, traders know that such moves are temporary in nature without a strong shift in conviction and participation to change the underlying current. A simple look at market momentum, we find both the 100 and 200-day simple moving averages are below spot and rising steadily. So long as the systemic conditions behind the capital markets and investor sentiment don’t change, a return to trend for the greenback grows more likely with each day. Yet, the force of that transition depends on the accelerants available to facilitate it.The first thing we have to notice, is that the economic docket does not carry the kind of event risk that we would expect to definitively wipe out risk trends nor verify the September time frame for the Fed’s first reduction in its stimulus program. It is difficult to determine what known event risk short of the next FOMC rate decision (on September 18th) can carry enough influence to upset the current equilibrium. This past week, remarkably strong numbers for US trade and service-sector activity reinforced the more dubious – but positive – 2Q GDP and employment figures from the previous week. Furthermore, the Fed speeches from the period – particularly extreme dove Charles Evans – were clearly shaped to avoid contradicting expectations of a September start for the stimulus wind down. Yet, despite this combination, confidence in stimulus-backed speculative-position held fast. In the week ahead, we have another round of contributory data to the stimulus debate as well as central bank talks on tap; but these listings don’t seem to be any more convincing than what we have recently priced in. On Tuesday, non-voting Atlanta Fed President Dennis Lockhart (a hawk on QE) will speak on the economy, while voter St. Louis Fed Preside! nt James ! Bullard (a QE dove) is set to speak on monetary policy on Wednesday and the economy Thursday. For data, retail sales, the consumer price index and University of Michigan consumer sentiment survey are all notable.If this list of indicators and speeches can’t generate an explicit shift in risk trends, the natural ebb and flow will guide the dollar. Given the hefty move by the benchmark currency this past week despite the lack of drive, a rebound is likely. Yet, its potency and follow through will be questionable. Alternatively, should there be an innate shift in sentiment, the greenback can quickly return to its role as the market’s preferred reserve currency – for better or worse – and pitch into a serious trend.Looking at the backdrop for capital markets beyond S&P 500’s record highs, conditions looks highly suspect. This past week, volume on the S&P 500 was the lowest seen on a non-holiday period since the markets were closed after the September 2001 terrorist attacks in New York – an extension of a steady trend. Leverage used at the NYSE has moved to record highs. Exposure to exceptionally risky assets has grown. Retail interest in riskier assets has ramped up while ‘professional’ exposure has fled at the fastest pace in years. Meanwhile, volatility indicators show extreme complacency while rates of return are near record lows… - JKWritten by: John Kicklighter, Chief StrategistSign up for John’s email distribution list, here.original source

3 Humongous Health-Care Stocks This Week

After extensive research, number-crunching, sorting, and filtering, the results are in. Here are your three most humongous performers in the world of health-care this week.

Breathing easier
Array BioPharma (NASDAQ: ARRY  ) shares climbed nearly 18% this week. The company announced positive results from a phase 2 study of its experimental asthma drug ARRY-502.

The study included 184 patients with mild-to-moderate persistent allergic asthma. ARRY-502 met the study's primary endpoint of significant improvement in a key measure of lung function. Several secondary endpoints were also successfully met, including statistically significant improvement in asthma control and symptom-free days during treatment.

Piper Jaffray bumped its price target for Array up from $7 to $10 after the good results were announced. That represents more than a 50% upside potential from the stock's current price. Array says that it's now looking for an "appropriate partner" to help complete development and potentially market ARRY-502.

An "alley-oop" from the opponent
Prosensa (NASDAQ: RNA  ) shares made something of a slam dunk this week, jumping more than 16%. That dunk was made with what amounts to an "alley-oop" from its primary rival, Sarepta Therapeutics (NASDAQ: SRPT  ) .

Sarepta announced on Thursday that it plans to seek approval for Duchenne muscular dystrophy, or DMD, drug eteplirsen without assurances from the Food and Drug Administration about an accelerated approval pathway. The biotech completed a phase 2 study for eteplirsen that showed impressive results. However, the small number of patients involved could present a hurdle for FDA approval.

In the meantime, Prosensa, along with partner GlaxoSmithKline (NYSE: GSK  ) , continue to plug ahead with a phase 3 study of DMD drug drisapersen that includes 186 participants -- much larger than the 12 boys in Sarepta's mid-stage study. Initial results from the study are expected in late 2013. An FDA approval could be forthcoming as early as the second half of next year.

Lunging forward
Intermune (NASDAQ: ITMN  ) announced second-quarter earnings on Wednesday. Higher-than-expected revenue helped shares advance almost 16% for the week.

The company's good news stemmed from strong sales growth for Esbriet, which is used in the treatment of idiopathic pulmonary fibrosis, a progressive form of lung disease. Intermune reported that sales of the drug were $14.4 million during the second quarter. Analysts expected $12 million.

With solid sales in the last quarter, Intermune now expects full-year revenue of $55 million to $70 million. That's a nice jump from the previous revenue guidance of $40 million to $55 million.

Esbriet was first launched in Germany in 2011. Intermune has rolled the drug out in 13 other European nations. However, the big U.S. market still remains to be tapped. The FDA rejected approval of Esbriet in 2010. Intermune has a late-stage test under way in the U.S. with results expected in the second quarter of 2014.

Best of the best
It's a tough decision between this week's humongous stocks as to which is the best pick. All three have had great years thus far and have potential to keep moving up.

All things considered, though, my hunch is to go with Array BioPharma. It's been a long time since a new allergic asthma drug has been introduced. Array definitely needs a partner to tackle the huge asthma market. I think it will find one and do well in the years ahead.

You might love the thrill of high-flying biotech stocks, but it's those ho-hum dividend stocks that can improve your odds the most of getting rich over time.Over the long term, the compounding effect of the quarterly payouts, as well as their growth, adds up faster than most investors imagine. With this in mind, our analysts sat down to identify the absolute best of the best when it comes to rock-solid dividend stocks, drawing up a list in this free report of the only nine that fit the bill. To discover the identities of these companies before the rest of the market catches on, you can download this valuable free report by simply clicking here now.

Your iPad Is Begging to Do So Much More

Second-screen technology was one of the big topics at the recent Cable Show in Washington, D.C. Motley Fool analyst Rex Moore was at the event and chatted with Akamai's (NASDAQ: AKAM  ) Kris Alexander about how so-called "couch commerce" is opening up new revenue streams for retailers, advertisers, and programmers.

In this segment, Kris talks about the explosion of connected devices such as Apple's (NASDAQ: AAPL  ) iPads and Google's (NASDAQ: GOOG  ) Android tablets, and what it means for second-screen commerce.

Looking for the top dog
It's incredible to think just how much of our digital and technological lives are almost entirely shaped and molded by just a handful of companies. Find out "Who Will Win the War Between the 5 Biggest Tech Stocks" in The Motley Fool's latest free report, which details the knock-down, drag-out battle being waged among the five kings of tech. Click here to keep reading.

Don't Get Too Worked Up Over NiSource's Earnings

Although business headlines still tout earnings numbers, many investors have moved past net earnings as a measure of a company's economic output. That's because earnings are very often less trustworthy than cash flow, since earnings are more open to manipulation based on dubious judgment calls.

Earnings' unreliability is one of the reasons Foolish investors often flip straight past the income statement to check the cash flow statement. In general, by taking a close look at the cash moving in and out of the business, you can better understand whether the last batch of earnings brought money into the company, or merely disguised a cash gusher with a pretty headline.

Calling all cash flows
When you are trying to buy the market's best stocks, it's worth checking up on your companies' free cash flow once a quarter or so, to see whether it bears any relationship to the net income in the headlines. That's what we do with this series. Today, we're checking in on NiSource (NYSE: NI  ) , whose recent revenue and earnings are plotted below.

Source: S&P Capital IQ. Data is current as of last fully reported fiscal quarter. Dollar values in millions. FCF = free cash flow. FY = fiscal year. TTM = trailing 12 months.

Over the past 12 months, NiSource burned $331.7 million cash while it booked net income of $483.2 million. That means it burned through all its revenue and more. That doesn't sound so great. FCF is less than net income. Ideally, we'd like to see the opposite.

All cash is not equal
Unfortunately, the cash flow statement isn't immune from nonsense, either. That's why it pays to take a close look at the components of cash flow from operations, to make sure that the cash flows are of high quality. What does that mean? To me, it means they need to be real and replicable in the upcoming quarters, rather than being offset by continual cash outflows that don't appear on the income statement (such as major capital expenditures).

For instance, cash flow based on cash net income and adjustments for non-cash income-statement expenses (like depreciation) is generally favorable. An increase in cash flow based on stiffing your suppliers (by increasing accounts payable for the short term) or shortchanging Uncle Sam on taxes will come back to bite investors later. The same goes for decreasing accounts receivable; this is good to see, but it's ordinary in recessionary times, and you can only increase collections so much. Finally, adding stock-based compensation expense back to cash flows is questionable when a company hands out a lot of equity to employees and uses cash in later periods to buy back those shares.

So how does the cash flow at NiSource look? Take a peek at the chart below, which flags questionable cash flow sources with a red bar.

Source: S&P Capital IQ. Data is current as of last fully reported fiscal quarter. Dollar values in millions. TTM = trailing 12 months.

When I say "questionable cash flow sources," I mean items such as changes in taxes payable, tax benefits from stock options, and asset sales, among others. That's not to say that companies booking these as sources of cash flow are weak, or are engaging in any sort of wrongdoing, or that everything that comes up questionable in my graph is automatically bad news. But whenever a company is getting more than, say, 10% of its cash from operations from these dubious sources, investors ought to make sure to refer to the filings and dig in.

With 22.3% of operating cash flow coming from questionable sources, NiSource investors should take a closer look at the underlying numbers. Within the questionable cash flow figure plotted in the TTM period above, other operating activities (which can include deferred income taxes, pension charges, and other one-off items) provided the biggest boost, at 17.4% of cash flow from operations. Overall, the biggest drag on FCF came from capital expenditures.

A Foolish final thought
Most investors don't keep tabs on their companies' cash flow. I think that's a mistake. If you take the time to read past the headlines and crack a filing now and then, you're in a much better position to spot potential trouble early. Better yet, you'll improve your odds of finding the underappreciated home-run stocks that provide the market's best returns.

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