Biotech Stocks Will Need To Rebuild Confidence With Momentum Gone
Damage on Friday 3/21 was considerable but most indices/ETFs are above 2014 Feb 6 low:
FBIOX ($206.4) Up 13.6% YTD, FEB 5 low $196.24
IBB ($246) Up 8.35% YTD, FEB 6 low $237.
PBE ($43.33) Up 16.94% YTD, FEB 5 low $40.32
XBI ($153) Up 17.6% YTD, FEB 6 low $141.60.
XLV ($58.13) Up 4.94% YTD FEB 3 low $54.86.
The hardest hit stocks in the Rayno Life Science Portfolio beyond the 4% average hit were:
Alexion (ALXN) down 7.99%, Albany Molecular (AMRI) down 7.38%, Biogen Idec (BIIB) down 8.22%, Cepheid (CPHD) down 5.59%, Exact (EXAS) down 6.35%, Illumina (ILMN) down 5.4%, Regeneron (REGN) down 5.45%, and Seattle Genetics (SGEN) down 5.68%. Large cap liquid, momentum stocks and biggest winners YTD were hit hardest. Institutional selling was massive and they have driven the market since early January 2014. ETF volume was huge making me think a lot of speculation is being driven by ETFs. Case in point today 3/24 XBI is down ~5% and among the big speculative positions were GEVA, ICPT, ITMN, NVAX, SGMO all down 7% or more.
Bring cash levels to 20% in your life science portfolio. Take profits on biggest winners YTD such as ALXN, AMRI and ILMN. Mid-cap high fliers (examples : AEGR CLDX ISIS PBYI) have broken charts so defer taking new positions until technicals stabilize. A lot of mid cap speculative mid-caps will depend on institutional support. Biotech stocks have had an amazing run for 2 years so take some off.We will rebalance the Rayno Portfolio pending this week’s action.
Disclosure: Long FBIOX with trading shorts on selective biotech mid caps and XBI on a day to day basis.——————————-
NASDAQ Down 0.29% at 11:11 a EDT 3/21
Dow up 0.56% and S&P Up 0.39%
The biotech screen was all red at the opening. It is not clear what is driving the sell-off except it coincides with the re-allocation to other sectors like financial and large cap tech stocks. Concern about rising interest rates from the FED meeting has shifted investors thinking toward sectors that would benefit from an improving economy. Healthcare stocks overall is the worse performing sector with the XLV down 0.63%. The XBI ($153.6)the S&P SPDR Biotech ETF is is down 3.9%.
There is also concern about the froth in small cap biotech such as the IPO market where 26/46 new offerings in 2014 were biotech stocks. High fliers were in a broad sell-off today many of which are overweighted in the XBI : AMRI, ICPT, INCY, ISIS, LGND, NVAX, SGMO. As today is March option closing this could be having an effect.
Also a Bloomberg article could be making an impact today as Congressional Democrats led by Henry Waxman are questioning the $84,000 pricing of the Gilead (GILD $72.9) HCV drug Sovaldi.
In the meantime a huge winner is Endocyte (ECYT $27.17) is up 87% after positive data was released on a Phase 2b lung cancer study.
This article will be updated over the weekend.