FED Fuel Fans Feuer
The monetized momentum market rolled on today despite the backdrop of bearish commentary from celebrity pundits and strategists. With the DOW hitting new highs at 14,263 (and forgetting about the 2001 NASDAQ 5000 high which is still 2000 points away), growth in the ISM at 56 showing expansion, and China growth pegged at 7.5% allaying some concerns, we have ignited the euphoric bulls. The S&P is now up 8% YTD and at 1541 is approaching many forecasters gains for all of 2013. Some strategists have upped their targets to 1575-2000.
We commented last week that although the biotechnology sector looked toppy, should the lagging NASDAQ and QQQ rally, biotechs will follow and indeed over 5 days the QQQ is up 3% and the IBB hit a new all time high today at $152.75 and 11% YTD. Biotech stocks thrive on momentum as they are speculative technology plays where financial metrics and valuations are outside the realm of traditional security analysis. And many of the big institutional players in the sector have plenty of 3% FED money loaned by big banks to drive stocks.
The life science sector started to move again yesterday but many of the 2012 big winners have seen a correction in 2013 with easing momentum. Over the past week we have seen a weaker tape from 2012 leaders such as Alexion (NASDAQ:ALXN), Biogen (NASDAQ:BIIB), Infinity (NASDAQ:INFN), Regeneron (NASDAQ:REGN) and Pharmacyclics (NASDAQ:PCYC) as institutions rotate into new names in the small and mid-cap area such as Achillion (NASDAQ:ACHN), Alnylam (NASDAQ:ALNY),Celldex (NASDAQ:CLDX), Nektar (NASDAQ:NKTR) and Trius (TSRX). Some momentum stocks have broken such as Interactive Surgical (ISRG $520) and Medivation (MDVN $46) both of which are down today.
We have a hold on all of our biopharmaceutical names and added Achillion (ACHN $8.84) yesterday as an HCV play at $8.60. Investors looking to hedge or take profits should consider selling Infinity Pharmaceuticals INFI ($44.98) which is a newbie up 28% YTD.
With such euphoria one needs to overlay a bit of caution if you are not a trader.
Disclosure: I am long ACHN.
Additional disclosure: Hedge biotechs with INFN short.