Market Off Its Lows Today-Consumer Cyclical and Technology Outperforming Healthcare

The market continues to be weak with the NASDAQ entering its 5th day of the sell-off  down 4.29% but the QQQ ($64.29) NASDAQ-100 has recovered from lows today. The ETF IBB ($64.32) has fared better down only 1.92% over five days and still up 18% YTD off its 2012 and all time high of $126.65. The XBI is running close by tracking the IBB but slightly underperforming over the past 5 days. (Fast Money-CNBC contributors have been pushing biotech and XBI lately which makes us curious but skeptical). The sector got a slight boost on Monday with clinical news from Vertex(VRTX ) on favorable data for its cystic fibrosis therapy, gapping the stock up 57%. many ETF’s and biotech funds have a 3-4% weighting in VRTX which has been a laggard due to competitive HCV therapies to its INCIVEK drug. (We recommended VRTX as a trade under $40).

The biotech sector has outperformed the NASDAQ-100 by about 6% over the past month as it is less affected by MACRO events and boosted by good clinical news as well as the longer term M&A trend. Moreover AAPL is down 10% over one month so that contributes to the weakness of  the QQQ. With AAPL stabilizing today up $4 we could see the QQQ outperforming the IBB.We would not add to positions in large cap biotech at this time due to a frothy tape (see VRTX) and overweighted hedge fund who are MO players that will need to take profits.

Our mid-cap biopharmaceutical index is down 1% with Dendreon (DNDN $9 ) up 2.6% on volume  of 5.5M and DynaVax (DVAX $4.05) was down 20% on volume of 20.5 M shares after they announced  an offering of 17.5M shares at $4.25.

On May 15 both BG Medicine (BGMD $4.03) and Vermillion, Inc. (VRML $2.11) will report sales and earnings. We reported on April 4 that these two companies were emerging players in biomarkers and offered a challenge as to who might be more successful by year-end 2012 as revenues build and deals are announced. Over one month the VRML stock is up 3.94% while the BGMD stock is down 40%. Vermillion stock trades at unusually high volume  of 500k shares/day for a micro-cap. The BGMD volume is in the 40k sh./day range.

Tools and Diagnostics stocks have been laggards but two small caps on our focus list Response Genetics (RGDX $1.99) and Sequenom (SQNM $5.32) are up today.

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