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The greater of two evils

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In recent weeks, I've profiled two biotech-equipment stocks as bearish in shares of Invitrogen (NASDAQ:IVGN) $29.52 -2.6% and Affymetrix (NASDAQ:AFFX) $17.12 -5.41%. Several subscribers have e-mailed me regarding how to manage both of these positions for which they have put options or underlying short positions on both stocks.

After careful consideration, I'm going to suggest that traders look to move to the sidelines in their bearish positions in Invitrogen (IVGN), but continue to hold positions in Affymetrix (AFFX).

My thinking is this. On July 3rd, bears got a nice break lower after past bearish profile in both stocks after "like stock" Qiagen (NASDAQ:QGENF) $7.06 +1.14% warned on earnings.

However, immediately following that company's warning, Invitrogen (IVGN) reaffirmed its guidance, saying it was on track to meet current analyst forecasts. As such, this perhaps removes a near- term cloud from the stock. I think bears should understand that the recent rally attempt found overhead supply serving as resistance and the less that bullish market environment leaves subscribers with either a small gain from past profile, or near break-even levels, and an opportunity to remove some risk from their accounts at current levels.

Invitrogen Chart - $1 box

I first profiled IVGN after the stock triggered a triple-bottom sell signal at $30. While the stock did fall to the $27 level after Qiagen (QGENF) warned on its earnings, the reaffirming of earnings by Invitrogen (IVGN) has me looking to close the trade out at current levels, or on any near-term weakness near $28.

However, I'd continue to hold a bearish position if fellow biotech-equipment stock Affymetrix (NASDAQ:AFFX), but lower a stop to the $19.50 level to try and assure profitability.

Affymetrix Chart - $1 and $0.50 box

There are some striking similarities between the point and figure charts of AFFX and IVGN, but AFFX does appear weaker. With the biotech bullish percent from Dorsey/Wright and Associates still in "bear confirmed" status at 12%, I'm willing to hold AFFX short/put, but would look to remove some risk from the account with the biotech sector at very "oversold" levels.

In essence, hold the "greater of two evils" for the downside, but remove IVGN from bearish holdings as the company did at least affirm current quarterly guidance.

Jeff Bailey
Senior Market Technician
Option Investor

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