Professor’s Comments May 1, 2014 Two Sisters

Posted by OMS  at May 1st, 2014

While I was paging through my sector charts this morning, I stopped to look at the Biotechs.  If you recall, last week I mentioned that a few stocks from Big Pharma, like Merck (MRK), were showing strength.  I didn’t say anything about the two BIG Biotech’s, Amgen (AMGN) and Biogen (BIIB).

But given where we are today, where the market is looking for leadership, I think we should start paying attention to these “Two Sisters”.

Less than two months ago, Biogen was trading over 350.  Then on 21 March, it got hammered for 28 points, which started a decline to the 290 level where it is today. 

On the same day that BIIB started its decline, AMGN fell 4 points which started a stair-step decline to where it is today near 111

Here’s the thing:  Stair-step declines are almost always corrective.  And by almost any measure, including P/E’s, both stocks were EXTREMELY overbought and NEEDED to correct.  Both of these sisters were very good stocks for the past year, but it doesn’t matter; they weren’t going to heaven.

OK, so why am I bringing them to your attention today?

Well, if you ignore the RED indicators for the moment and look strictly at price, you can see that even though both stocks have corrected a lot, both remain in Up Trends.  The 50 is still above the 200.  BIIB is currently sitting (resting?) right on it’s 200.

The recent hammering not only caused them to come back to earth, it also made them cheap!  AMGN currently sells for only 16 times its forward looking earnings, with BIIB priced at 20 x E.  That’s pretty cheap for almost any large ‘technology’ stock in today’s market. 

In today’s Comments, I talked about how technology stocks have not participated in the markets move higher so far.  I also mentioned that the DMI on the QQQ is still RED.

Well during the next week or so, instead of watching a bunch of semiconductor stocks, I will be paying a lot of attention to the biotech sisters. Looking ahead, I see some tough times for any stock that relies heavily on the disposable income of consumers.  The semis are mostly consumer driven; the Biotechs are not. In a tough market, consumers will buy drugs over new laptops or Google Glass.  Trust me, I know.

And given that it appears the Big Pharma Group is starting to strengthen, I’m wondering how long it will be before investors start to notice the better value that is now in the Bios.  Hmmm?

Anyhow, I just wanted to bring this to your attention.  I already told you that I’m holding a lot of energy stocks now, and I’m looking for a place to put the rest of my money IF the market starts to move higher.  With over 78 Million Boomers in America alone needing new drugs, I’m going to watch the two sisters. Besides, it’s a lot easier to watch two Bios than 1,000 semis.

That’s what I’m doing,

h

Not sure of the terminology we use? Check out these articles

The Hockey Stick Pattern
The Creation of Waves and Trends
FAQ

All of the commentary expressed in this site and any attachments are opinions of the author, subject to change, and provided for educational purposes only. Nothing in this commentary or any attachments should be considered as trading advice. Trading any financial instrument is RISKY and may result in loss of capital including loss of principal. Past performance is not indicative of future results. Always understand the RISK before you trade.