Caution - Follow Technicals - Potential for Macro Risk Off
The Life Science sector is about 1.5% off highs of February 1 and has formed a double top from October 5 highs. In recent posts we urged caution as some MO stocks had blow-off tops (Alexion (ALXN), medivation (MDVN), Regeneron (REGN)) and the IBB and XBI were unable to reach new highs with both charts looking toppy in Q1. We do not expect new highs for the sector until Q2 unless the NASDAQ or QQQ ($67.30) gather momentum.
On the bullish side, the Fed liquidity machine is pumping, housing is recovering, investors are overweight in bonds and the US looks better for investors than ROW. Sequestration is being ignored as a market factor.
- Look for a stable bottoming in weaker MO stocks like ALXN, REGN and Seattle Genetics (SGEN).
- Amgen (AMGN), Biogen (BIIB) and Gilead (GILD) are very strong behaving more like blue chips. These stocks will not let you in on weakness.
- Albany Molecular (AMRI) and Pharmacyclics (PCYC) are the best performers YTD up 50%+.
- Three major ETFs are still up about 5% YTD: FBT, IBB and XBI
- The Five Star Fidelity Biotechnology Fund (FBIOX $117.92) is still up 7% YTD.
- No portfolio changes have been made except some profit taking.
- Stock sponsorship is most important as major funds will still buy their favorite stocks.
- Small and mid cap biotech stocks, even laggards, show good volume with many new highs: Immunogen IMGN, Infinity (INFI) Optimer (OPTR)and Sangamo (SGMO).
- Valuation and financial metrics do not matter (except balance sheet).
Rayno Life Science Portfolio-Biopharmaceuticals
Additional disclosure: Use shorts only as hedges. Best mutual fund relative to biopharmaceuticals is FBIOX.