After September, it became apparent to me that the overall market entered bear territory. Biotechs are highly susceptible to market fluctuations and sure enough, the bears began to take back gains from earlier in the year. That sent me into cash. Making money includes protecting the money you made.
I recognize that there are two vastly opposing viewpoints. One view predicts that the market is beginning to rebound and will soon hit higher highs. The second view is that a global recession and gridlocked politics will inevitably send the market lower into later 2012 early 2013.
I am of the opinion that the market is heading south. That view won't make me popular, but if my position turns out to be true, then the savvy biotech investor who goes into cash will be the extraordinary patient investor who tucks away his/her cash for their favorite biotech that will hit lower lows such as back in 2008.
Right now, the only way I see trading this market is day-trading. If your favorite biotech goes up, then you ring the register. But I am increasingly worried about this strategy. The overall market is extremely bearish and moving in and out of the biotech market could be riskier than ever.
Individual investors never want to read that their favorite biotech could go lower, but if the U.S. economy falls over the fiscal cliff, then articles like this one will be remembered as the early clarion call to go into cash. Given that Europe has been unable to contain its own euro collapse and tensions in the Middle East are escalating, I suspect 2013 will shake the markets, which is why I think sitting in cash is savvy.
Market conditions also dictate why I am not recommending any biotechs and/or stocks. It seems contradictory to me to suggest buying something if you think you can buy it at a lower price. That's my position. I think the market based on a global recession, Washington gridlock, and general market malaise will create buying opportunities for those who were savvy to go into cash.
Over 2012, a number of exciting microcap biotechs garnered my interest. Among them were: Zalicus (ZLCS), AEterna Zentaris (AEZS), Astex (ASTX), and Antares (ATRS). I've come to think that Arena (ARNA) may be a much better pick than Vivus (VVUS) in 2013 and I am not ready to give up on Questcor (QCOR). Are there other biotech opportunities out there? Of course, but the overall market is much bigger than a one day rally followed by another drop. I suggest microcap biotech buyers pay more attention to the global direction of the market than get caught up in a biotech stock's specifics. I think the months ahead could be extremely rocky which is why I think a cash position is savvy.
Disclaimer: This is an opinion article and offers zero individual investor advice. It's your obligation to seek the advice of a market professional. Be advised you could lose your entire account being invested in the stock market.