Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Biotech Bull Market Consolidation Phase-Profit Taking Picks Up

|Includes:SPDR Biotech ETF (XBI)

Biotech Stocks More Volatile- No Technical Levels Breached

Watch The Lows of February 6 (IBB $236.8)

Biotech stocks had a rough day selling off worse than the NASDAQ which was off 1.5%. Major biotech ETFs were off almost 3% before rallying within the last hour . The XBI is different from other ETFs in that it is "equal weighted" in over 50 multi-cap well known biotech stocks but not overweight in larger caps as is the IBB and large mutual funds like Fidelity Select Biotech (FBIOX $219 on Mar 12). However it is outperforming (up 20% +YTD) other ETFs due to overweighting in many "hi-fliers" like Intercept Pharmaceuticals (ICPT, Intermune (ITMN , Novavax (NASDAQ:NVAX) and Sangamo Biosciences (NASDAQ:SGMO). The XBI also appears to have an algorithmic component to it as weightings change weekly with MACD.

The overall stock action has been more choppy lately albeit with recent 52 week highs in larger caps like Alexion (NASDAQ:ALXN). But among the more speculative high fliers there have been more 15% + moves down over one month such as Aegerion (NASDAQ:AEGR), Celldex Therapeutics (NASDAQ:CLDX), Isis Pharmaceuticals (ISIS), Medivation (NASDAQ:MDVN), Puma Biotechnology (NYSE:PBYI) and many others.

Green stocks on our focus list today were : Albany Molecular (NASDAQ:AMRI), Genomic Health (NASDAQ:GHDX), Neogen (NASDAQ:NEOG) and Vermillion (NASDAQ:VRML).

We will provide an update at month end on our long term model for the Biotech Bull Market in stocks: Key Trends To Watch. The Key Trends we will monitor correspond to the following life science sectors:

  1. Large Cap Biopharmaceuticals: Amgen (NASDAQ:AMGN), Biogen Idec (NASDAQ:BIIB), Celgene (NASDAQ:CELG), Gilead (NASDAQ:GILD) and Regeneron (NASDAQ:REGN). These are growth stocks that can be valued by revenues and earnings.
  2. Emerging Growth Mid-Cap Biopharmaceuticals in Immuno-Oncology: many are momentum stocks with strong pipelines and new product launches near term. M&A is also part of the play.
  3. ETFs: With a raging bull market a basic play is buy one or more Biotech ETFs such as FBT,IBB, PBE,IBB, XBI and XLV. In 2013 the sector was up 50-60% so any of these outperformed the market.
  4. Speculative small caps and high fliers. With IPOs booming, follow-on stock offerings robust and news feed on a roll this has been a lively market sector for traders.
  5. Diagnostics and Tools. Although on a more modest growth trajectory than biopharmaceuticals these stocks have been driven by technological and product breakthroughs such as genomics, sequencing, point of care testing. Financial metrics and M&A play are more important.

We urged investor last month to raise cash levels due to the 15% level in biotech holdings because of the huge moves in Q1 and a 60% appreciation in 2013.

Watch technical levels of February 6, 2014. Hold Rayno Life Science focus stocks but do not add new positions.

Disclosure: I am long XLV.

Additional disclosure: I am long Fidelity Select Biotech fund (MUTF:FBIOX) and short individual biopharma stocks on a daily basis.

Stocks: XBI