Here’s what’s up with biotech. (January 28, 2015)
I want to show you biotech here. Most of the market, it just got really ugly; there’s a lot of topping patterns, a lot of breakouts that aren’t working. Biotech is still working, down the IBB, the index down over 2 percent today, but look at this uptrend, it’s still working just fine but we’ve got a little more of a pullback to go, if the market continues to be weak.
I’ll show you Illumina ( NASDAQ:ILMN ) in just a second, I think this selling is really a function of sell them if you can sell them. The ones that have demand, if you’re a large fund and you need to be taking some profits, you need to be raising some cash, you’re going to do that in biotech right now and then look to either buy it back lower or buy some other stuff that you see is getting to where it is about to be a good value such as energy stocks, well not so much.
But anyway that’s my theory here; the uptrend, these are not economically sensitive unless there’s a real down turn in the economy and even then what are economically sensitive in biotech terms are the small cap biotechs, because those are the start ups, those are the ones that by definition of being a small cap they don’t have a lot of capitalization, they don’t have a lot of dough so they need to get financing.
When money is really, really tight like it’s not right now then they’re going to have trouble, people don’t want to put money on some biotech stock, I know I wouldn’t if my money was really, really tight, so that is not this. This is not the way this is working now. So I would look for a pullback here on the IBB ( NASDAQ:IBB ), on the biotech index ( NASDAQ:IBB ) before you really get all lathered up about a particular stock, and this is really what’s happening.
You look at Illumina ( NASDAQ:ILMN ) here, the daily chart trading at about 200.00, that was the ceiling. Just yesterday it poked up above there, 206.00, today it got above 210.00. If the market were strong, if there was buying pressure in the market you would have probably seen a pretty significant breakout. You can see on the weekly chart it’s still in a really nice uptrend but you would have seen a breakout.
I’m not making a call on Illumina ( NASDAQ:ILMN ) one way or another. If you look at this ADX indicator, which is essentially a trend indicator, the black line gives you the strength of the trend not the direction. The black line is about as weak as it can be, or put another way, this stock is just drifting totally sideways; as such I have no opinion on it, it could go up, it could go down. Right now it’s in a sideways consolidation, the breakout was sold into and that’s my point.
Here, this stock broke out, really heavy volume today and it closed at the low of the day, 30 cents above the low of the day, which on a $200.00 is kind of at the low. So my point is, I want you to be really, really careful; don’t be a biotech bull if you’re a short-term trader. If you’re a long-term trader, that’s great, because I think biotech still works.
But if you’re a long-term trader, a long-term investor in biotech, if you’re a believer in biotech then you don’t need to be looking at this chart; look at this one, Illumina ( NASDAQ:ILMN ), look at this one, Celgene ( NASDAQ:CELG ), that works, probably going to pullback a bit, about as much as the IBB ( NASDAQ:IBB ); we can go on and on. Celldex ( NASDAQ:CLDX ), I like this stock, I’m long a bunch of calls on it, I would say this is going to pullback a bit. On the weekly chart though the stock is still in an uptrend.
So there are all these biotech stocks that are still in an uptrend and if this is your timeframe, if you’re looking at the fundamentals, memo to you, if you’re looking at the fundamentals of a biotech stock then actually you really shouldn’t care about what the stock price is doing, should you? If the stock is lower, you like the stock; you think the company’s future is so bright if you’re going to trade it you’ve got to wear welding goggles. If that’s your take on a company fundamentally, then why are you looking at charts? You can look at charts to find the best buy points to add to your marvelous position.
But on the other hand if you are getting shaken out, in and out, in and out because of these daily gyrations then don’t turn, listen to me I’m giving you pearls, don’t turn a loosing trade in to a long-term position because suddenly you think you know more than guys on the street who cover biotech and are making millions of dollars. In other words know what you’re trading, know why you’re trading it. If you’re looking at balance sheets and phase two trials and this and that and the other thing, that’s great, buy the weakness if you like it. But if you want to trade them then you need to look at the charts.
I hadn’t even planned to go in to Celldex ( NASDAQ:CLDX ), but I digress a lot, I don’t even take medication for my ADD, I think it because I like it. Anyway, you can look here on Celldex ( NASDAQ:CLDX ), like I said, I like this company, but short-term I think it hits 21.00 before it hits 24.00 again, because that’s just the way this stock is trading. The bottom line is this; I want you to be careful with biotech right now. I look at the overall market as more of a shorting environment, not for biotech, but just an environment to be putting on shorts versus buying dips you’re just not seeing the dip buying be rewarding.
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