Biotechs Walking a Fine Line
- Posted by Frank Zorrilla
- on February 5th, 2015
The Biotech sector has been a Wall Street darling for the last 5 years, the Nasdaq biotech index is up roughly 350% in that time frame. I believe that the sector right now is in a precarious position, the $IBB and $XBI have come under a little pressure over the last week and a few stocks like $BLUE have sold off on what many believed was good news.
The $XBI $IBB and $NBI-X are all trading below their 20 day moving averages and below an ascending trend-line that started in October. But, if you put all the chart stuff aside, I believe this sector has become an over loved sector that is not reacting to news or bouncing with the same gusto as it has in the past after multiple down days. The sector has become so loved that what you hear now is– “people will never stop using drugs so these stocks really won’t go down” or “recession or no recession, regardless of what happens in the market doctors won’t stop prescribing drugs” etc… and while this might be true, at the end of the day stocks go up and down not up or down.
From a trading perspective, I would look to short the sector as close as possible to the 20 day moving average/ascending trend-line with a stop at their respective 52 week highs.
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Frank Zorrilla is the founder and chief investment officer of Zor Capital LLC.He began his Wall Street career 10 days after his 20th birthday when he became a Series 7 licensed stock broker. More »
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