Forget mad cow disease!

We’ve discovered another brain-wasting disease that is sweeping the financial markets – mad Dow disease.

The symptoms may be even scarier than those exhibited by Alberta’s mad cow when she got the hoof from the slaughterhouse for irrational exuberance reminiscent of day traders during the dot-com boom.

The symptoms of mad Dow disease are strikingly similar to those of mad cow disease, or bovine spongiform encephalopathy (BSE).

The brains of mad cows develop tiny holes and resemble a sponge. The animal loses control over its movements. Simply put, it is mad.

When an Alberta Angus cow (let’s call her Bossy) tested positive for mad cow disease, investors immediately contracted mad Dow disease.

The investor reaction to Bossy’s lab tests indicated an immediate loss of control, presumably the result of tiny holes in their brains which led them to behave irrationally, selling low and buying high.

How else does one explain the herd mentality that led to hole-in-the-head panic selling of beef-related stocks on the news of Alberta’s mad cow and the U.S. ban on beef exports from Canada?

While Canada’s mad cow will have devastating consequences to cattle ranchers and the Canadian beef industry, the sell-off of some stocks was a classic knee-jerk reaction that played into the hands of savvy traders.

The unfortunate victims of mad Dow disease sold beef-related stocks on the news and then watched as the shares rebounded almost to where they had traded before the news broke, making it a virtual non-story from a stock market perspective.

Much-maligned McDonald’s (MCD-NYSE) had the biggest slice lopped off its market cap as shareholders with visions of Mad Macs dancing in their heads trimmed seven per cent off the stock the day of the news, making it the biggest loser of the day on the Dow Jones Index.

It turned out to be a juicy buying opportunity.

Those who didn’t lose their heads could have turned a tidy profit on the Golden Arches, buying low on the news and selling on the rebound.

In the three days subsequent to the news, McDonald’s stock recovered to within two per cent of its pre-mad cow price.

Tyson Foods (TSN-NYSE), the largest beef producer in the U.S. and owner of Lakeside Packers based in Brooks, Alta., showed a similar chart. Tyson stock took a nasty five-per-cent hit on the day of the news, but then rallied by week’s end to within about two per cent of its pre-mad cow price.

The Keg Royalty Trust Fund (KEG.UN-TSX) was brutally carved for a hefty 10-per-cent loss on the news. But then the steakhouse income trust rallied in three days within five per cent of its pre-mad cow price.

Even CP Rail (CP-TSX) absorbed an immediate three-per-cent hit, courtesy of a lone diseased cow. Within three days, the railroad was less than one per cent off its price before it dipped on the news.

Food processing giant Premium Brands (FFF-TSX), which markets products such as Fletcher’s and Grimm’s, was branded for a seven-per-cent loss when the news broke.

However, unlike the reaction of most other stocks to mad cow disease, Premium Brands didn’t recover much, partly because its stock was halted for news late in the week.

Stay tuned.

This mad cow rollercoaster, with its wheels being greased by a diseased dead cow, panic-stricken sellers and imaginative headline writers, is just beginning to roll.

* SIGNS OF AN APOCALYPSE? Two of the most hyped Canadian stocks, according the Stockhouse Canada chatboard, are biotechs Oncolytics Biotech (ONC-TSX) and Lorus Therapeutics (LOR-TSX), both of which are developing drugs for treating cancer.

Lorus is No. 1 on the chat charts and Oncolytics (see HOT ALBERTA STOCK) is No. 5. Both companies have seen their stocks more than double this year and still are a long way from posting earnings.

Those may be ominous signs when you consider recent history.

Remember three years ago when the stocks that were most hyped with the most spectacular gains suddenly imploded as the tech bubble burst?

Lorus is up 67 per cent since it was picked as part of the Edge’s Dirty Dozen Penny Stock Index three months ago.

A laggard among the biotechs has been Edmonton’s Isotechnika. The stock has shown only modest gains recently, running to $3.19 on news of an expansion of the company’s drug pipeline, but that’s still well off its 52-week high.

Canaccord Capital rates Isotechnika a buy with a target of $7.50.

* SAGE WORDS: “The stock market is a psychological soup of fear, greed, hope, superstition and host of other emotions and motives.”

– William A. Sherden, investment author



HOT ALBERTA STOCK: ONCOLYTICS BIOTECH
ONC-TSX $3.48
Up $1.08 (+45.0%) on 779,000 shares (for week ending May 23).
Biotech fever continues to sweep the land. The latest spike by Oncolytics, on news of a seventh U.S. patent for its potential cancer therapeutic, Reolysin, makes it a whopping double in less than a month. The Calgary
company also narrowed its first-quarter loss from seven cents to five cents per share.



COLD ALBERTA STOCK: LEXXOR ENERGY
LXX-TSX $1.20
Down 21 cents (-14.9%) on 378,600 shares (for week ending May 23).
Lexxor normally trades less than 20,000 shares per day. But the Calgary oil and gas company succeeded in getting some serious attention from shareholders with some unimpressive financial and production results. Volume spiked to 233,200 shares in a single day as the stock hit a 52-week low, 50 per cent off its 52-week high.