End of Year Rally Crushed By Turmoil in Budget Talks

Up until late yesterday investors were optimistic about a budget deal with the “Kubuki Theater” Congress. You have heard enough about the fiscal cliff and non-starter proposals to avert the fiscal cliff so let this link suffice. Up until now the market expected some deal to be struck but optimism has waned. With two hours trading left the market is off its lows but down over 1% on heavy volume.

Most recently we reiterated a number of buys in our Diagnostics and Tools portfolio and many of these focus stocks took a hit today. Among the stalled DX plays today are Alere (ALR) down 1% , Cepheid (CPHD) down 0.7% and Quidel (QDEL) down 1.76%. Thinly traded Response Genetics (RGDX) took a big 7% hit. High volume selling and profit taking has hurt the technicals of Exact Sciences (EXAS $10.6)  and Sequenom (SQNM $4.66) both down over 3%.

Chembio (CEMI $5.55) up 23%, a small cap diagnostic player broke out today on news of FDA approval of its point of care HIV diagnostic test.

Illumina (ILMN $56.60) up 0.7% continued its momentum as the Roche bid rumor resurfaced. Illumina was added to our focus list at $27.20 and reiterated in the $45 range.

Rayno Biopharmaceutical stocks were hit harder with many big winner momentum plays off more than 2%. Using the logic of the AAPL stock decline due to profit taking we have been perplexed by the continued strength of big biotech winners such as Medivation (MDVN $52) and Regeneron (REGN $172.48). But Alexion (ALXN $93.90) is well off its October high of $119 and the sector overall remains lower than the October highs.

Take a little off the high fliers and remain cautious.

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