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Biotech Stocks Rally After Brief Sell-Off: INFI, PCYC

|Includes: iShares Nasdaq Biotechnology ETF (IBB), INFI, PCYC

Technicals Still Rule As Momentum Eases

The Life Science sector is up about 1% after two days of selling on heavy volume. The bellwether ETFs (IBB $145.16) are about 2% off 52 week highs and we do not expect this rally to surpass highs so caution is still recommended. Many of the larger cap MOmentum plays have blown off their tops and trying to stabilize. For example, Alexion (ALXN $87) had a blow-off top of $119 in October so is 27% off from 52 week highs; Regeneron (REGN $158.45) another favorite of hedge funds and BIG money has been losing momentum and is 15% off recent highs of $188.Medivation (MDVN $49.62 ) 0ff 0.44% continues weak off its 52 week high of $59.24 and the Company reports on Feb 28.

As we noted on February 14 many of the winners from 2012 are down YTD and while the sector remains speculative with new money pushing stocks like Infinity (INFI $41.11) and Pharmacyclics (PCYC $89.61) higher there is a lot of stock distribution and profit taking. Our hedged trade recommendation of several months ago with MDVN short and PCYC long netted 40%++ profit depending when you got out.

We would be adding to Gilead (GILD $42.28) on weakness but the shares are solid near all time highs. Cubist (CBST $42.42) is also strong just off early January highs and should be accumulated on weakness.

Diagnostics and tools show a lot of green today with Abaxis (NASDAQ:ABAX), Alere (NYSE:ALR), Cardiovascular Sciences (NASDAQ:CSII) and Quidel (NASDAQ:QDEL) all holding up well technically.

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Two stocks illustrative of the biotech bull market is PCYC with a market cap of $6.2B but valuation and metrics do not matter if deals sound good and pipeline is robust. Same for Infinity Pharmaceuticals (NASDAQ:INFI) with a market cap of $1.6B with no Phase II data.