Captivated by the allure of Keryx (NASDAQ:KERX), I raise this question: Why would a micro-cap biotech investor like me look to the steel stocks? Simple, for the same reason investors look at Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) to gauge the market's direction. I'm looking at U.S. Steel (NYSE:X), AK Steel (NYSE:AKS), and Nucor (NYSE:NUE) to clue me in on where the market is heading.
- Sidebar: Apple has been treading water not just because Steve Jobs is stepping aside, but because the global picture is ugly; after closing at $403.41/share on 26 July 2011, Apple has twice bottomed to a close of $353.21/share on 8 August 2011 and $356.03/share on 19 August 2011. Likewise, Google has been losing altitude from a $622.52 close on 26 July 2011, then dipping to $490.92 on 19 August 2011.
- Rabbit trail: For the sickening fun of it, Goldman Sacs (NYSE:GS) fell to $106.51/share close on 22 August 2011 from $175/share on 14 January 2011. Throw in Bank of America (NYSE:BAC) that closed on the same 14 January 2011 at $15.25/share, but closed on Friday, 2 September 2011 at $7.25/share despite the Warren Buffett bail-out. And forgive me, but Jim Cramer's favorite Citibank (NYSE:C) after raping investors in a reverse-stock split recently fell to $26.06/share close on 22 August 2011. If you ask me, the financial sector looks like the proverbial frog sitting in a pot of water with the flame underneath turned up on high.
And what about U.S. Steel, AK Steel, and Nucor? They are starting to look like junk yard dogs. And yes, I'm concerned when the fall-out will hit micro-cap biotech stocks. Steel stocks are the infrastructure of America's roads, buildings, and bridges. If these backbone stocks of America's economy take a beating, it won't be long until micro-cap biotechs get pounded.
Before the 2008 market collapse, U.S. Steel closed at $191.96/share on 25 June 2008; Nucor closed at $82.07/share on 16 May 2008; AK Steel closed at $72.89 on 20 May 2008. But trouble was coming. By 16 March 2009, U.S. Steel closed at $16.88/share; on 20 November 2008, Nucor closed at $25.52/share; AK Steel closed at $5.45 on 2 March 2009. While since that time, all three steel stocks recovered to some degree from their lows, it's unnerving if you consider how hard they all fell on 22 August 2011: U.S. Steel fell to $25.58/share; Nucor fell to $31.48; AK Steel fell to $7.70/share. What am I suggesting? Simple, these steel stocks exemplify how anemic the U.S. economy is, and I think are representative of the early frost of a wintry recession. Which then means for micro-cap biotech investors that new lows could reappear since the market first dipped in the autumn of 2008, and later in March 2009.
Therefore, my conclusion is the days ahead aren't good. The only way to play this market is to buy and sell and protect your cash. America isn't heading into a recession, America is already in a recession. Just as the August jobs' number was flat-line, America is running out of time, no thanks to a crippling multi-trillion dollar deficit. I am skeptical and pessimistic. Despite micro-cap biotech dreams of triple digit returns, the same companies could have their price per share annihilated in a flash crash or a double dip that most likely will go much lower than the first. In my estimation, the recent 8 August 2011 Dow Jones drop to 10,810 wasn't the bottom, it was the beginning. How do I know that? Look at U.S. Steel, AK Steel, and Nucor, then look at Apple and Google, and then go to Goldman Sachs and Bank of America. The picture ain't pretty!
But unlike 2008 going into 2009, the stock market isn't falling like a shooting star, this time it's more like a movie running in slow motion. In my opinion, the 8 August 2011 dip was a shot across the bow. The steel stocks are sounding the clarion call like watchmen on the wall. Therefore, be careful how you invest in the micro-cap biotech sector. All bets may be off. Your favorite micro-cap biotech may become a victim of the markets.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.