Aug

14

Giddy Biotech Bulls?

Pete @ 2:15 PM | | Start a Discussion 

While going through stories from the major financial news outlets, we can’t help but notice that a major theme has emerged. It seems like they have finally clued in to the performance of the biotech sector.

While market participants were losing sleep in the month of July with the major weakness everywhere, biotechs quietly outperformed and are now belatedly getting the ’something has changed’ media exposure.

Let’s make a list of some bullish biotech talk:

  • The Momentum Crowd Runs Into Biotech
    “It really has nothing to do with the underlying facts and figures,” Worth says. “It’s the gambling nature of certain capital, coupled with the frustration of nothing else working.”
  • Investing in Biotech
    An outlook on biotech stocks, with Mad Money host Jim Cramer.
  • Right Time for Biotech
    Cramer believes the time is still right for biotech, and he thinks Genzyme, with its orphan drugs, is going to be a big winner come November.
  • Fast Money Final Call
    Fast Money’s Guy Adami says he’s bullish on biotech.
  • The Bull Sitting in the Medicine Cabinet
    Like biotech, the healthcare-products sector is one of the few areas of the stock market that is showing bullish results in a rotten market.

Biotech HOLDRs (BBH)

14-bbh.gif
Daily bar chart with InVivo.RMI.Stops and InVivo.RMI.Histogram applied

Momentum traders have been known to take *Hot Spots* to ‘infinity and beyond!’ like they did with oil, fertilizer stocks, coal stocks, etc. The average investor must not lose their head during times like this. They need to have discipline and follow their investment plans.

The following two tools are important pieces when it comes to figuring out investor behavior.

  • As Mullainathan & Thaler wrote in their classic paper, “…it may often pay ’smart money’ to follow ‘dumb money’ rather than to lean against it.”
  • The Investor Sentiment Cycle-Market Phases can’t never change thanks to human nature.

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