CELG and sooo much more . . . . (August 27, 2015)
I want to look at biotech specifically, and actually exclusively Celgene ( NASDAQ:CELG ), and this is why: First we’ll start with the sector, I would call it a shot across the bow, meaning the uptrend has been pretty clear, buying all along the 50-day moving average and then a big whoosh down. The reason I say I would call it, is because this is much bigger than just the biotech, the entire market, this is one big shot across the bow.
By the way, that is the way I look at it for the entire market. Anything can happen, I’m digressing here but that’s what I do; if I were royalty I’d be the “Duke of Digression.” I think that this was a big shot across the bow. This is the type of thing that, you know you see these complacent money managers who all they know how to do is buy, like I said, they’re just complacent. You’re probably going to see this come up more, it’s not coming in a straight line; this move, sorry it’s over.
We could get a little more rally to the upside, and I know I’m ticking some of you off because you’re a bull and you think that I’m so wrong whenever I say, “I don’t really like Apple ( NASDAQ:AAPL ) or I don’t like this or I don’t like that.” I’m just a trader; I’ll go both ways, in trading. What I’m looking at in the overall market is probably a little more upside just because folks have a lot of cash now. Not everybody bought down here, there’s a lot of selling going on, the panic is kind of subsiding, and so money managers, prudently, are saying, “Well I’ve got to put some money back to work.”
You know some folks just rode through this whole thing; white knuckled it. But generally speaking, money managers, unless they’re hedge funds, I don’t know too many guys who trade through Charles Schwab or any number of other money managers. We have some on “Stock Market Mentor” and when I talk to some of you guys, you manage lots of money. You probably just held through this thing because you’re not going to sell when the S&P is down 8 percent or something like that.
I mean how much more can it go down? Anybody’s who’s managed any kind of money for any amount of time has been through this. Although I’ve got to tell you this was pretty sporty, it was pretty sporty. If you’ve managed money for any amount of time you know that the worst thing, and listen to me because if you’re a trader here, you’re a money manager. You know that the worst thing that you can be doing is selling in to this big decline. If the market’s down like in two big days here, we’re down 5 percent.
By the way, I was on CNBC on this day, in the morning actually, saying, “Yes, I think we’re going to go lower, I think we’re going to get to 1910.00.” That happened, I just didn’t expect it to happen the next trading day. But money managers know that you don’t sell when the S&P is down 5 percent. Just like you don’t rush and buy a stock when the stock is up 5 percent when it’s running.
Just a little while ago I had “Fast Money” on in the background, I heard Karen Finerman talking about that, how kind of bad it felt. I don’t know if she was talking about a specific thing she did, I don’t know. But she was talking about how bad she felt when she’s buying a stock that’s up, when it’s up. So that’s her instinct, like “No, I want to buy stocks when they’re down. I want to buy stuff when it’s on sale, not when it’s marked up.”
So similarly a good money manger feels bad when they’re selling stocks on the way down. They should actually, according to their thesis, according to their approach to the market; they should be looking to buy more. But that’s not what’s happening when you’re fully invested in the market as most money mangers are. They’ll have a little cash component but almost never more than 10 percent, almost never more than 10 percent.
So you’ve got a lot of money managers who have just sat here and watched this, I’m sure they were sweating. I’m sure the local watering hole probably saw them a little bit earlier than typically they do, certainly if they’re out here on the West Coast when the market closes at 1:00. Two words, “Happy Hour,” but they just rode through this whole thing. Now we’re looking to put any money to work that we can.
And back to biotech, oh, let me finish this thought; my thought is this, again, shot across the bow; at some point, at some point in the future, in 2016, 2017, whatever, when this market starts rolling over a lot of folks who thought, “Oh, it’s fine because we got a big rebound,” maybe we even come up here. A lot of folks who thought it’s just fine, when the S&P’s down here, because finally investors realize there really isn’t that much global growth, it’s all just a canard. It’s an illusion based on free money, thanks to the creature from Jekyll Island.
Then you’re going to look back on this and say, “Huh, that really meant something,” just like we look back on this now and say, “Wow! That really meant something.” Seriously, I want you to thing about this. This here was a warning that this can happen. This was the warning, but most folks shrug it off because we hit new highs. I forget what the reason for this was, but there’s always a stated reason for this. This time around it was because China’s falling so far. Whatever, there’ll be another reason for the next one.
But this was a shot across the bow by the bears saying, “You know what? We’re not happy with the way stocks are trading, we’re probably going to be selling sometime soon.” This presages this, just like this will presages something over here at some point because that’s the way that markets trade. What I’m telling you is this, don’t be a bear right now unless you want to go into a cave and sleep for 6 months and then come out and wait and see what happened. This is not going to do this, it’s just not, that’s not the way markets trade, never seen one that’s traded that way.
But I sure could see this stuttering around here for a while and then in come Q3 earnings and they’re not too good and suddenly, okay, the bull market’s over. So just be careful about that. But now lets get back to what I initially wanted to do in about a two-minute video, and that is look at the IBB. We’re back above the 200-day moving average; this is the stuff that is not economically sensitive. Nobody in the biotech industry gives a rip whether the Chinese are buying Teslas or iPhones or iWatches. Nobody cares in the biotech industry.
So one of the stocks that I want you to look at is one of the big dogs, the large capper, and this is why, because this isn’t a trade. Now this was a trade, buy at 95.00, it’s at $123.00. If that was what you did, get out tomorrow, just take you’re money and run. This has been in a sideways consolidation, we’ve seen this volatility in both directions and it’s in a sideways consolidation again. So what’s the deal? The deal is this, all of this trading down here, and all of this trading up here; this has really raised the average cost basis of short-term traders to right around here.
Why would I know that? Because this is where the big volume spike is and this is where the stock was where the stock was trading. So this stock is trading, with respect to short-term traders, I’m averaging here, it’s trading at about par. In other words, listen to me I’m giving you pearls here, showing you how to do this stuff, it’s trading right around where a lot of traders own it. Because there was a big washout here, this was the big day, and then the stock’s up even more, another big volume day. You kind of put all of these together, these three days here, and you’ve got an average cost basis of right around here.
So I think this stock is going to be churning more, it’s going to be grinding around. You don’t have to rush out and buy it tomorrow; you’re not in danger of it getting away from you. But look at this because it is holding at the 200-day moving average. Take note of what I said with respect to “shots across the bow.” I want you to think about that, I want you to write it down. Remember it and then in six months you come back to me and say, “Dan, you know you were full of corn.” Or you can say, “Wow! That shot across the bow stuff, humm, maybe there’s something to it.”
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