Biotech Sector Pullback: Good Time to Buy at a Discount

A comment from Kenneth regarding a pullback in the biotech sector:

Hi VFC,

I noticed that the biotech sector seems to be retracing downwards after its recent run. Recent press releases from several biotech companies have not garnered much response in terms of upward price movement (for eg. AGEN's glioma trial results and Peregrine's breast cancer trial results to name a few). I have not been investing in biotech stocks long enough to know if this is just an expected retracement and that the biotech sector will recover soon or that the bubble for small biotech companies has burst and won't recover for some time. Would appreciate your input.

Thanks,
Kenneth.

VFC's Take: The general market sentiment has turned negative again, in my opinion, after disappointing unemployment and economic numbers continue to dominate the headlines. Things were looking pretty good when the DOW touched 10,000, but I would think that many investors also thought that it was time to take some profits off the table.

Because the biotech sector did enjoy such a run up, it only makes sense that it's that sector from where profits would be pulled first. It's been my observation over the years that speculative money is the first to leave the market when the sentiment turns negative - especially after run ups like the one enjoyed this year by the biotechs.

In addition to pure profit taking, let's not forget the involvement of the big boys. It's a lot easier for the big boys to manipulate the relatively small floats of small and low priced biotechs, so after stretching the profits as far as they can to the upside, the big boys will go short and pressure the stock back down, rather than just selling an moving on. That trading action causes the huge price swings in a relatively short time that has many jittery investors on edge right now.

Rather than complain about the games, I like taking the strategy of playing along with them; sell into the spike when the big boys run it and then try to buy low when the big boys short - I call it 'picking up the bread crumbs that the big boys leave behind.' I think that we, as small investors, have an advantage over the big boys when they play their games because we can move in and out of a stock a lot quicker than they can.

However, to stay on top of the games takes time, patience and a high tolerance for risk and volatility. Additionally, if one were to try and play every stock that way, it could get pretty consuming and stressful. I pick a few from the portfolio where my entry strategy has me trading in and out with a handful of trading shares while others I tend to simply accumulate for the long term, unless I see a spike that I simply cannot refuse.

As for your examples of news having no impact on the stock price, in regards to AGEN, I think the fact that the glioma trial is only a Phase II update doesn't impress investors much; Phase III, maybe. Also, there were a lot of investors that were in AGEN simply anticipating an EMEA decision and when that decision didn't turn out the way they wanted, they bailed out and left. At that point, in my opinion, the big boys shorted the stock heavily and rode it down; the question there, in my opinion, is why they did not push it down to the sub-$1 level. It makes me think that there is either another leg down coming or that Antigenics may have some other news pending that could support the current, or higher, prices.

As for PPHM, the stock rose a bit after the reverse split before coming down after the news. It was also a Phase II update and in this day and age of looking to make huge gains every night, Phase II updates will not impress anyone aside from the small investor who has a long term and PATIENT outlook.

My take on the biotech pullback summed up in a short sentence: I don't mind it because it's a good time to buy those stocks that you're looking to accumulate for the long term at a 'discount'.

In today's age - the age of true greed - the small investor has to be more confident than ever in their own Due Diligence (DD) to survive the volatility and the manipulation. This is the age where people would walk across the street, kick an innocent bystander in the back in order to swipe his or her last dollar and then walk home and brag that they pulled in an extra couple of bucks that day. Just because this scenario is played out in the anonymous cyberspace of the Internet and stock manipulation does not make it any less ethical.

That being said, it's a fact of life that you've got to deal with and that's why the small investor has to try and keep up with the games that big boys play. However, if you're confident in your DD, research and the facts, then you'll have the stamina to hold through the storm; eventually, a stock price will trade in line with the potential of a product, drug, treatment or service if the technology,science and/or market trend is real - it may just be a bumpy ride getting to that point.

As for the big boys? Let them play their games. If you're in doubt that there are coordinated attacks on stocks, take a look at the message boards when dozens of new IDs show up and spew out BS hours before market open and then for the duration of the time that they want the stock to go down. After their mission is accomplished, the board goes silent and the only ones that are still left are the long timers. It's like a swarm of locusts (or just a few clowns sitting on a computer) that fly in to incite panic, fear and confusion until their job is done.

Also, watch those videos by Jim Cramer on You Tube where he explains how it's done. Straight from the big guy's mouth regarding his days at the hedge funds.

The games will be played, it's just up to us to pick up the crumbs.

These are all just my own opinions based on experiences and observations; I call it like I see it.

Thanks for the comment, Kenneth.

Comments

[John Mylant:]

"Rather than complain about the games, I like taking the strategy of playing along with them; sell into the spike when the big boys run it and then try to buy low when the big boys short - I call it 'picking up the bread crumbs that the big boys leave behind.' I think that we, as small investors, have an advantage over the big boys when they play their games because we can move in and out of a stock a lot quicker than they can."

This is an interesting strategy. But don't u have to know the "big boys" are the ones manipulating the stock?

John Mylant
mylantsmoneyblog.typep.../

Oct 28 03:57 PM

[jimmy Turano:]

Wed.10/28/09 vfc now while the stock market is anemic,
with compounding bad news from many sectors, I totally disagree to bargain hunt now at all. The market still may take a hit, but even so the recovery if an is years away.
Look at 'MRNA' Today closed at $1.02, and two weeks ago I asked you to discuss the stock, when it was $1.46.
I thought it would be headed under $1 dollar again, and now with barchart giving short,medium,long trend indicators of 100% sell with overall average of 100% sell,
it's TIMBER for this one.
Your new photo soon won't be sitting in a hammock long,
rather most probale postion will on the ground, because the Market is more than set for Clean out of sorts.
This is not a time to bargain hunt, but a time to hold onto your money with both fists.

Oct 28 04:09 PM

[nougatine1:]

"In today's age - the age of true greed - the small investor has to be more confident than ever in their own Due Diligence (DD) to survive the volatility and the manipulation. "

Fully agree VFC...like Obesity drugs...
Question is irrationality for us...But very clear for them...Down maxi the share and jump ASAP for taking the money...with maxi shares...
AGEN...after earnings..."Rebound today...?"
One advice...: Choose your DD and stay on...because shares are manipulated...Look at obesity drugs...You will constat a very interesting evidence between CEO interview and share evolution...during CNBC's sqwake box..."Hilarous..."

Oct 29 08:58 AM

[tc1:]

Thank you for this article, VFC.

Talk about manipulation and opportunities...

We can consider biotech stock Sangamo BioSciences (SGMO), for whom most analysts posit a price target anywhere from $11 to $18. In Sept. it traded between $8 or $9 until it predictably fell to the low $7 range on an early-Oct. announcement of a stock offering. It then got pummeled with a a ridiculously low P.O. of $4 issued out of left field by Breann Murphy "analyst" (manipulator) Jonathan Aschoff, whom Mark Mitchell and the Deep Capture team have flushed out as a big friend of the naked short-sellers.

That stock is now available for the very low bargain-price of ~$6.

Meanwhile, SGMO is a big recipient of steady govt spending on its anthrax vaccine, and has several other very promising biopharma products in the pipeline.

Disclosure: recently went long on SGMO at this artificially (fraudulently?) hammered down discount price. If it only goes back to its Sept. high, i've got a 50% gain.

Oct 29 11:27 AM

[tc1:]

Oops-- recent sleep shortages knocked out some of my memory banks!

Aschoff is with Brean Murray (not "Breann Murphy").

And Sangamo is, of course, not the anthrax vaccine maker (i was momentarily confusing it in my mind with Emergent BioSolutions (EBS), another recently hammered down biotech). Rather, SGMO is famous for its zinc finger nucleases (ZFNs) or protein "switches" that can turn genes on or off for treating conditions like diabetic neuropathy, etc.

Oct 29 11:37 AM