A 2.7+% rally faded today as European debt crisis  headlines put a damper on optimism. Many of the pundits were skeptical of the rally saying it was driven by short covering.

Biotechs Outperforming This Month

With all of this volatility you’d think we found a trend. But the three day rally has only brought the S&P to the mid-point of September’s trading range and flat for the month at 1175.Over 3 months we are down 8.18% and we are down 6.54% YTD, after this latest rally. Jim Paulsen, Chief Strategist of Wells Capital Management says we need US data just to show the economy is not falling off a cliff to break out of the 100 point range.   The QQQ’s and the IBB are outperforming the S&P up 4.17% and 4.95% respectively. Over the past month we recommended that longs play ETF’s with an overweight of QQQ for tech,IBB for biotech and XLV for large cap healthcare and relative safety. In general  the market has been trading on macro news and fears about recession so any sector edge can be big.

An article in This Week’s Barron’s, an Interview with Eric Sung of Bernstein Research touted several medtech stocks JNJ, Medtronic (MDT) and Zimmer (ZMH) and those who bought Monday morning were rewarded as the stocks are up 5% +.

Recent Rayno Life Science Portfolio picks continued to do well this week: Abaxis (ABAX $25.34), Cubist (CBST $36.93),Illumina (ILMN $42.70) Seattle Genetics(SGEN $19.67), Viropharma (VPHM $18.53) although they are quite volatile. Alexion (ALXN $67) and Gilead (GILD $40.02) targets were raised by Think Equity. The diagnostics and tools sector came to life today with many larger cap stocks up 2-3% Agilent (A),Becton Dickinson (BDX), Cepheid(CPHD), Idexx (IDXX),and ThermoFisher (TMO).

But Neogen (NEOG $32.88 ) cratered 7.6% on volume of 947k shares as it missed earnings by a penny with earnings the same as last year at $0.25/sh. and missed revenue estimates of $47M with fiscal Q1 2012 sales of $45.7 although up over the same quarter last year of $42.9M.

As we enter the seasonality strong fourth quarter for Life Science stocks, we will look for more bargains but in this volatile market and the minefield of Q3 earnings season it is best to stay with the ETF’s preferably IBB.

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