QQQs Outperforming Biotech ETFs IBB and XBI-Take a Little Off
Biotech Stocks are weak again today with both ETFs showing distribution and momentum moving toward the bottom of the channel. Nothing major but 3-5% off July tops. The QQQs continue to outperform today up 0.21%. Large cap biotech losers are Alexion (ALXN $102.6), Biogen-Idec (BIIB $145), Celgene ( $69.56) and Illumina (ILMN $40.71). Healthcare overall is a weak sector down 0.5% today.
The NASDAQ rallied 1% and the S&P was up 0.71% but many biotech stocks did not participate. The biotech sector has been on a tear in 2012 up 28% YTD with many stocks up much more. The Rayno Biopharmaceutical Portfolio had many huge winners such as Alexion (NASDAQ:ALXN), Biogen-Idec (NASDAQ:BIIB), Cubist (CBST), Pharmacyclics (NASDAQ:PCYC), Regeneron (NASDAQ:REGN), and Seattle Genetics (NASDAQ:SGEN). However action lately has been toppy with the indices and ETFs just off late July highs (IBB $133.70). Over the past month the QQQ (up 7.6%) has outperformed the biotech ETFs by 5-10% and the current NASDAQ rally extends supports this trend. Biotech stocks have been strong because of strong underlying market trends: M&A driven by need for products and pipeline, good clinical news, improving financial results by large cap biotechs and apparent immunity from Euro gloom. Moreover institutions such as Fidelity, Vanguard, Blackrock and major hedge funds have been big buyers as sector momentum builds. However, profit taking can ensue and lately there is a choppiness that indicates stock distribution, but nothing major as chart channels are intact. A major sell-off does not look imminent but veteran traders in the industry know the hyper-bullish sentiment can weaken especially at these elevated levels.
Idenix Pharmaceuticals (IDIX $5.84) took a 29% hit today after their Hepatitis C clinical trial was put on hold by the FDA due to heart failure issues. The experimental drug is a nucleotide polymerase inhibitor and this concern could affect other nucleotide drugs being developed and marketed by companies such as Vertex (VRTX $54.48) flat and Gilead (GILD $56.69) down 2.21%.
The caution flag is not out yet on the biotech sector but investors need to track news and technicals to protect their easy profits.
Disclosure: I am long ILMN.