Is Healthcare Finally Healed? Timing is Everything

You may have seen my comments about Spicy Pickle (OTCBB: SPKL) in the blog on Thursday. However, I think what I said then is important enough to reiterate - and add to - here in the newsletter. What was my message? Simple - if you're looking for a great entry level into a long-term SPKL position, I think the window of opportunity is open now. More on that in a second. In the meantime...

Has anybody else noticed the developing uptrend in the healthcare sector? While the uptrend appears to have been more volatile than most other stocks over the last three years, these stocks have also made a habit of more than recovering from the selloffs. More recently, we're starting to see healthcare outperform other sectors....something we haven't seen in a while. 

Might there be a trade-worthy idea somewhere in the middle of all that new strength? We believe there is. In fact, we're so compelled by it, we're going to log today's stock pick as an official trade suggestion on our 'Trading Alerts' page. Let's start with a brief comment on Spicy Pickle first, and then get to our newest trading suggestion. 
 

	Picking the Proper Price For the 'Pickle'

In recent blog entries I've talked at great length about the difference between investing and trading. In my memory, the most profitable market participants are the ones who understood that difference. The discussion resurfaced again when we introduced Spicy Pickle back on September 22nd. We knew its momentum at the time was mostly built on hype and newness, yet we still made some very quick money on the trade - it moved from 69 cents to $1.40 in only a few weeks, letting many of you pocket some big gains. 

As I later said when I told you to lock in the gain, euphoria wears off. When it does, stocks can fall back (which is why I said to lock in the gain). Sure enough, SPKL fell back. In fact, it made a full 61.8% retracement of its big run-up. More than that, the support at the 61.8% line held up as support on Thursday, and actually pushed the stock higher again on Friday. In other words, the 'easing' phase after its euphoric rise may also be complete. 

Now that the initial 'trading' is out of the way, I think we should be looking at the stock from an investor's point of view, which is a longer-term view. However, it doesn't mean you can't take advantage of a short-term pricing opportunity. If you liked the company's long-term prospects but were waiting for the perfect time to get into the stock, I think we're there now. 

That's not to say there won't be volatility injected again in the future. That's going to happen over and over again. In fact, I think they have earnings coming up pretty soon, which should push the stock around pretty good. What I'm talking about is looking past the upcoming quarterly numbers, and instead looking at next year's likely numbers. In those terms, I think Spicy Pickle is a great value at $1.34. 
 

	Tenet Healthcare - Finally Healthy Again?

Take a look at the nearby chart of the S&P Healthcare Index. Like I said above, there's been a lot of volatility for healthcare of late, but overall it's been a somewhat rewarding roller-coaster ride. How rewarding? The index is up about 25% since this time in 2002. That's not bad, but the sector was clearly a laggard during that time frame. 

The thing is - and as most of you probably know by now - I'm a firm believer in sector rotation. That just means I think what's hot today will be cold tomorrow, and what's cold today will be hot tomorrow...metaphorically speaking. So, I'm the kind of guy that's willing to sell some of my basic materials and energy stocks (which have been red hot this year) and start taking serious looks at and healthcare and transportation stocks (which have been lackluster this year). Like I often say, the best time to become on owner of a stock is when nobody else seems to want it - before it becomes popular again. 

The 'evidence' of rotation into healthcare has been subtle so far, but here's my observation.....healthcare's strength is moving up the charts, so to speak. In terms of performance over the last twelve months, healthcare ranks ninth out of the eleven major sectors. Over the last six months, it ranks seventh. The three month rank is also seventh. For the month, it's in fifth place, and over the last two weeks it's ranked fourth. Granted, some of the higher rankings are by the virtue of losing less, but you can still see the relative progress. 

The other consideration is the possibility of the 'R' word...recession. I'm not saying I think we're headed that way, though it seems to be a bigger worry now than it usually is. I am saying, however, that fear of a recession alone could drive investors into the safer arenas like healthcare. And, should we truly enter a recession - however you define it - then healthcare could be poised to do well for a fairly extended period of time.

There are a handful of ways to jump into this sector-based trading idea. The most obvious is an exchange-traded-fund, or ETF. The iShares Dow Jones Healthcare Index (NYSE: IHF) is a pretty good one, and so is the Healthcare Select Sector SPDR (AMEX: XLV). Vanguard's Health Care ETF (NYSE: VHT) has plenty of liquidity as well. If you're looking for more horsepower, many of the ETFs or healthcare indices are optionable. 

As for a specific healthcare stock 'trading idea', we've been really impressed by Tenet Healthcare Corp. (NYSE: THC). Not only do we think THC will get the added boost of being in the right sector at the right time, but Tenet's chart has provided us with a couple of bullish hints over the last few weeks.

Specifically, notice how Tenet shares have broken above the resistance level around $3.60. In fact, it blew past that line on November 6th with a high volume surge. 

The catalyst on the 6th? Last quarter, Tenet posted a smaller loss on higher revenues. The market appears to have picked up on that, and is now thinking the company can stay on the same path. The logic makes sense. I've said it before...you buy stocks for where the company is going - not for where they've been. Tenet seems to be moving in the right direction, which is towards profitability. 

In terms of a target, I think $7.67 would be a good level to take some profits. That's just a tad under the highs for the year, as you can see on the chart. Yes, it's 88.9% above the current trading level. That's a big target, but we didn't say it was going to happen overnight. We view this as more of a longer-term position. For a stop, I think I'd be out with any trade at or under $3.17, which is about the average of all the lows hit between August and October. 
 

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Larry Isen, the editor and publisher of the OTC Journal, through various entities he controls, has purchased 1,200,441 shares of Spicy Pickle at an average cost of $.2125 per share. These purchases were made in Spicy Pickle private offerings. The aforementioned purchases were made between August of 2005 and August of 2006. In addition, Larry Isen has received 785,000 shares of Spicy Pickle common stock for consulting services. In addition, MarketByte LLC, an entity controlled by Larry Isen, has received a fee of $30,000 cash, and 300,000 newly issued restricted shares for coverage of Spicy Pickle. TGR Group LLC, the publisher of the Small Cap Network, has received $30,000 and 300,000 newly issued restricted shares for coverage of Spicy Pickle. Mr. Isen is an affiliate of TGR Group. In addition, two other individuals affiliated with TGR Group have purchased a total of 300,000 shares at $.25 per share and received an additional 70,000 for consulting services. Current positions of the aforementioned can be found at www.otcjournal.com and www.smallcapnetwork.com in the Spicy Pickle information section. 

TGR Group LLC has been paid a fee of $25,000 and 150,000 shares of newly issued restricted stock by Cel-Sci for coverage of the Company. The aforementioned 150,000 restricted shares have become free trading under SEC rule 144. Additionally, back in November of 2002, TGR Group LLC was paid a fee of $25,000 and 250,000 shares of newly issued restricted stock of Cel-Sci for coverage of the company until November of 2003. The aforementioned 250,000 restricted shares became free trading under SEC rule 144 and were sold in the open market prior to the company entering into a new contract agreement with TGR Group in February of 2006. 

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