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Biotech's buck broader downside

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A positive Phase III trial for Genentech's (NYSE:DNA) $53.45 +41.42% Avastin drug, which the company says has demonstrated benefit that exceeds what the study was designed to test has the broader biotechnology sector as depicted by the Biotechnology Index (BTK.X) 415.06 +3% bucking an otherwise negative trend and adding bullishness to some of the more smaller biotechnology stocks like EntreMed (NASDAQ:ENMD) $3.74 +42.52%, which back in late April announced positive preclinical findings for its Pansem anti-tumor drug, which launched the stock from multi-year lows of $2.00 to new 52-week highs.

Brokers have been either side of the Genentech this morning with Goldman Sachs upgrading the stock to "outperform" from "in-line" based on today's news, while AG Edward cuts its rating on the stock to "hold" from "buy" based on price appreciation with the belief that today's move is excessive in the extreme. I (Jeff Bailey) would tend to side with AG Edwards on this one in the near-term based on some of the technicals discussed last week that had us projecting price targets to $48-$49. While bullish targets can always be exceeded, I do think today's 41% gain is a bit excessive for a daily move on a company DNA's size. In this morning's market monitor, I thought bulls should raise their stops to just under the $48.00, which would be under our bullish target, but still allow for further bullish gains for those that hold September expiration calls.

While biotechs are holding gains, along with gold stocks as depicted by the Gold/Silver Index (XAU.X) 73.54 +2.53%, the broader drug sector as depicted by the Pharmaceutical Index (DRG.X) 314.24 -4.2% are hit lower after the New York Times reported that Bristol-Myers Squibb (NYSE:BMY) $23.85 -7.6% and its financial statement are being investigated by the federal prosecutors, FBI agents, SEC and postal inspectors with the questioning of former and current BMY employees taking boxes of documents from the company's office after the company had been served notice in early October of last year that the U.S. Attorney's office had launched an investigation into the company's financials.

Shares of Eli Lilly (NYSE:LLY) $60.14 -5.33% are also under selling presure, despite the company announcing that new data shows its Cymbalta drug significantly reduced pain associated with diabetic neuropathy after one week of treatment and throughout the remainder of the study.

Major market index action has the Dow Industrials (INDU) down 128 points at 8,550 (-1.47%), the broader S&P 500 Index (SPX.X) 928 -1.72% off 16 points and NASDAQ-100 Index (NDX.X) 1,130 -2.11% lower by 24 points.

Technology sectors look to be under some profit taking today with the Networking Index (NWX.X) 182 -3.39%, Semiconductor Index (SOX.X) 343 -3.2% and GSTI Software Index (GSO.X) 116.77 -2.61% leading the tech-sector declines. As noted in prior weeks, the NASDAQ-100 Bullish % ($BPNDX) has risen well above the more overbought 70% bullish level to as high as 79% in recent session, and provides a much higher risk level for bulls, and today's action does hint that some profits are most likely being taken off the table, perhaps with the weaker dollar being a good "excuse." Regardless, I have felt that the NASDAQ-100 Index (NDX.X) and Tracking Stock (AMEX:QQQ) $28.08 -2.09% could be considered "early bearish" candidates for PARTIAL bearish put positions, only due to the higher levels of bullishness, which would have BULLS holding the greater degree of risk. I continue to monitor these internals on a daily basis, and this index's bullish % has been holding the 77% to 79% level the last 6 sessions. Should the bullish % for this narrower index fall below the 70% level, it would then reverse into the "bear alert" status, where an even more defensive posture would then be advised.

Jeff Bailey

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