Why Cash Overrules The Momentary Market Bounce

by: James Stocklasar Thomas Jr.

On 21 November, SeekingAlpha published my less than positive view representing why I sold out of biotechs and I am now loaded with dry powder. Now, on the eve of 26 November, it looks like I was completely wrong. As my memory serves me, I wrote my biotech epitaph in advance of the mighty 19 November stock market gainer, so I will present just how wrong I appear to be using 16 November.

Companies 16 Nov 26 Nov

Zalicus (ZLCS)

$0.53 $0.59
AEterna Zentaris (NASDAQ:AEZS) $1.93 $2.16
Astex (NASDAQ:ASTX) $2.27 $2.61
Antares (NASDAQ:ATRS) $3.65 $3.98
Arena (NASDAQ:ARNA) $8.50 $9.43
Vivus (NASDAQ:VVUS) $10.33 $11.16
Questcor (QCOR) $24.78 $27.84

As the above demonstrates, it appears I missed a huge gainer. However, the above scenario would have required me to have bought these biotech stocks on the downside, when the stock market plummeted. That would mean I would have needed to be in cash in order to do that. In reality, if I went back to 1 October (when the downturn began to gain steam), the picture is quite different. Using the same companies, I observe the following:

Companies 1 Oct 26 Nov


$0.75 $0.59
AEterna Zentaris ($0.67 x 6 R/S on 5 Oct) $4.02 $2.16
Astex $3.04 $2.61
Antares $4.28 $3.98
Arena $8.31 $9.43
Vivus $18.30 $11.16
Questcor $19.01 $27.84

Since 1 October, only 2 biotechs on my narrow biotech watchlist fared better: Arena and Questcor. The microcap biotechs, where I usually fish, have performed miserably. In fact, I can think of iBIO (NYSEMKT:IBIO) and Catalyst (NASDAQ:CPRX) that have been downright disasters. I also point out that Arena looks much more resilient than Vivus in 2013 and Questcor has defied the market down-turn since 1 October. However, Monday's bullish pop inclines me to think there will be a market correction before it ascends higher.

In reality, I am not negative on the biotech stocks I follow-- and as I wrote before, day-trading is one method for beating the market. However, I just don't like the direction I see the market taking. This isn't about politics, though I think the fiscal cliff isn't helping. This is more about watching how the bears seem to have taken control and the market is moving deeper into correction territory. Am I the only one to think this market's bearish?

Since I invest to make money, I'm interested in buying my favorite biotechs when they hit lows. Over the last week, the market has sent my favorite biotechs higher, but I'm not ready to bite. By the way, Questcor was over $50/share back in September, so those who've held over the last year aren't exactly cheering.

On Tuesday investors are going to be watching Acadia (NASDAQ:ACAD) to read and hear the results on Pimavanserin's phase 3 clinical trial. By the time the market opens, the stock will either pop or drop and it reminds me that despite market forces (bullish or bearish), microcap biotechs can have a mind of their own. Meanwhile, I'm going to continue to follow the direction of the overall market, sit patiently in cash, and wait for a time that I think is coming when the bargains will be the stocks of bag-holders.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Investors buy and/or sell at their own risk. This article is for entertainment purposes only. You the reader are responsible to seek the advice of a licensed market professional and are warned not to use this article for individual investor advice.

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