Huge Profits YTD Bring Selling-Momentum is Broken

Profit taking has hit the biotechnology sector again today with major ETFs down 2% and momentum stocks hit harder. We recommended caution on 10/22 (see below) as momentum eased on stocks that were up over 100% YTD with the overall sector up 40%. Despite recent media coverage of biotechnology stocks, product approvals and advances in genomics participation in the sector is limited to hedge funds and a few major mutual funds. Generalist money managers still tend to view the sector as speculative  with fundamental metrics such as Price to Sales and EPS growth too volatile.

We are tracking two major ETFs (IBB and XBI) as well as four larger cap biopharmaceutical stocks that are prized by momentum investors. All four are well off their highs and Regeneron (REGN ) and Medivation (MDVN)  down over 3% today. Medivation (MDVN) stock  is much more sensitive to revenues which will be announced November 1.   Even large cap more stable biotechs such as Amgen (AMGN) and Biogen Idec (BIIB) are weak today.

The iShares NASDAQ Biotechnology ETF (IBB)  is still up 25.5% YTD but well off its highs of  $148.54 earlier this month. We expect the June bottom near $121 to hold.

Our mid-cap biotech index has a lot of red down 2.5%.

Once the sell-off has run its course look for a Q4 2012 rally but not to new highs.

NASDAQ Correction and Biotechnology Sector |


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