Biotech Stocks Sell-Off on China, Greece and Network Outages…Update-1 Rally Mode

7/13/15 12N EDT Roller Coaster Market

MACRO to sidelines

A wave of optimism reverses concerns about China and Greece. China stocks have recovered because there is still growth potential. Although a Greek deal is not finalized the glass is half full again and a Grexit looks off the table. Apparently any Greek deal is a good for the market.Momentum has returned to the market despite overhang of Eurozone problems. Healthcare and technology are leaders up over 1%.

  • NASDAQ up 1.29% as of mid-day trading, up 1 % over 5 days.
  • IBB up 1.8% and 2.4% , up 2.4% over 5 days.
  • XBI up 2.8% and 5% over 5 days.
  • Speculative stocks are back in action.
  • China is back with the SSE Composite up 2.39%.
  • European stocks are rallying with the FTSE 100 up 2.19% over 5 days.
  • The US 10 Year Yield hit 2.4% with FED looking to raise rates in 2015.

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Biotech Stocks Could Not Hold the Fort -Global Concerns Mount

Pundits and IT Experts Say Cybersecurity Was Not Breached

We see today that even biotech stocks can sell-off on negative macro sentiment. All of the global news compounded by network issues with United Airlines and the NYSE rattled traders and created a bias toward profit taking. Some market experts say this was more than a “glitch” but a warning about complex IT software issues in days to come because computers rule financial systems.

China rose above Greece as a global concern because it could derail the economic recovery. China also has become a very speculative stock and real estate market. Many US companies especially semiconductors are dependent on revenues to China. Japan joined the sell-off today as well with the Japan ETF (EWJ) down over 4%.

Biotech stocks have stalled recently after hitting all time highs in late June. Selling was evident even before the network problems occurred with the XBI down at the opening ending the day down 3.69% and 0.89% for 30 days. Mark that June 23 peak of $261 because you may not see a new high until Q4. Strong support lies at the $240 level the triple top of 2015. Remember the XBI is the ETF leader  up 29% YTD but with more beta and small cap speculative stocks. The re-balancing of XBI holdings is faster that any human so we suspect “algos” driving trades at the SPDR S&P Biotech ETF.

Looking across the sector there was a sea of red and momentum evaporated.

  • Large Cap Biopharmaceuticals sold off with leaders Amgen (AMGN) down 1.98%, Biogen (BIIB) down 2.54%, Gilead Sciences (GILD) down 1.9% and Regeneron (REGN) down 1.61%.
  • Mid-caps were very weak and we should watch this group closely because they are overvalued by fundamental metrics and are market leaders YTD:  Alnylam (ALNY) down 5.69%, Clovis Oncology (CLVS) down 7.85%, Incyte (INCY) down 3.04% and Vertex (VRTX) down 4.66%. Biomarin (BMRN) held up better down only 1.57%.
  • The broad based IBB is still up 19.59% YTD and flat over one month.
  • Small cap immuno-oncology and genetic therapy plays sold off: Agios (AGIO) down 5.3%, bluebird bio (BLUE) down 3.11%, Juno (JUNO) down 6.24%, Kite Pharma (KITE) down 5% and ZioPharm (ZIOP) down 6.58%.

Despite the sell-off we should consider that trading today was affected by several elements primarily the negative macro picture. With not many news drivers ahead for life science stocks wait for earnings results and watch technicals. Risk remains off.

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