CLASSIC EXAMPLE OF A SHORT CORRUPTING HER ANALYSIS
From Street.com from approx 5 weeks ago. Problem is once they short they often try to kick the market down themselves. I don't happen to short stocks,(too much negativity for me) however I understand how some might need to do this. My problem is when opinion making columnists with a mouthpiece like Street.com, start ripping biotech to cover deep short positions, as I think is what happened here
Commentary : The BioDancer
Fed Clears the Way for Short-Sellers
By Lissa Morgenthaler
Special to TheStreet.com
Originally posted at 3:53 PM ET 4/18/01 on RealMoney.com
Wednesday morning's Fed cut doesn't alter my outlook one iota, though it sure is fun. Didja see Myriad Genetics (MYGN:Nasdaq - news) rocket up $7 in five minutes? (Before it backed off, of course.) I was looking for the market --- and by extension, biotech --- to rally into options expiration on Friday. Then I was guessing both the market and biotech would head down next week to start what I believe will be a May retest of the prior lows.
Wednesday's Fed action doesn't change my expectations, except that if I'm right, the downtrend could start Thursday instead of Friday or Monday. We've had a spectacular rally off the lows.
Rally Caps
It doesn't get much better than this. In fact, can this run last much longer?
Wednesday
April 4 Wednesday
April 18
AMEX Biotech Index (BTK) 413.72 544.46 31.60%
Nasdaq Biotech Index (CXBT) 674.92 866.02 28.30
Nasdaq Composite (CCMP) 1638.8 2086.88 27.30
Nasdaq 100 (NDX) 1370.75 1842.5 34.40
Philadelphia Semi Index (SOX) 463.49 655.53 41.40
AMEX Drug Index (DRG) 374.91 389.32 3.80
(Incidentally, four of the six averages listed above hit 52-week lows on April 4.)
Upshot? It don' t get much better than that, boyz and girlz. The Fed's action clears the way for short-sellers like you, me and many other folks on this site to breathe deep and start shorting again.
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How to Play It? Don't, Actually
I'm always net long biotech because the biotech mutual fund I run can only go 25% short. But I'm tellin' ya, I can't see this run continuing much longer. A few folks who've been underwater on their stocks will surely take this as a chance to do some spring cleaning and exit. (Meanwhile, check out those plummeting drug stocks!)
It is fascinating that this Fed, which has made a ritual of telegraphing its moves in advance under the latter-day Greenspan, staged yet another surprise cut like the one on Jan. 3. Longtime investors remember that Alan Greenspan became head of the Fed in August 1987 and promptly raised rates the following month. It's my opinion he scared himself silly during the ensuing stock market crash, not to mention what he did to the rest of us, and he's been slow on the trigger ever since. (Betcha Don Hays would agree.)
Meanwhile, we're having a mondo big argument in our shop about whether or not the U.S. will slide into recession this year, not just about whether a recession has already begun. I'm loudly in the camp that says we're in it, "a balance-sheet recession, the kind we had before World War II, as opposed to the profit-and-loss type recessions we've had since," as The Economist magazine puts it. Or, in less high-falutin' terms, this contraction isn't about inventory corrections. It's about the vaporization of our collective wealth. And speaking as one deeply interested in medicine, that wound won't heal overnight.
So what does it all mean for my beloved biotechs? Starting in the next few days, I fear they're going down. It ain't about the Fed or interest rates for biotech. Biotech sucked in $36 billion of fresh cash last year between IPOs, convertible debentures and private investment in public equities (the so-called PIPEs are a way institutions can buy a chunk of a stock, frequently 15% under the open-market price, and hold it for maybe six months before blowing it out). The industry's never been on a better footing, and 10 to 13 drugs are expected to be approved in the second half of this year.
But for biotech stocks, it's about the market. I've contended for months that biotech is the strongest sector of the Nasdaq and rightfully so, not a "bubble" as it was in 1992.
However, I don't believe the Nasdaq will hold up -- and when it falls, not even biotech can stand against it. I've been saying that biotech fell last and least, as you would expect of a really strong sector. But I can't figure out how much the trading patterns of my stocks altered when 10 of them became part of the Nasdaq 100 index. (Five of those 10 went in just a few months ago.) When Todd-o and Doug Kass and JJC short the Nasdaq 100 Unit Trust (QQQ:Amex - news), those are my biotechs they're shorting. It galls me that I haven't figured out the ripple effect through the rest of the biotech stocks from that somewhat artificial yanking around.
Moreover, I am very conscious of hedge fund action these days. Biotech has the sort of volatility combined with "edge potential" that hedgies love, so I don't expect the stocks to behave themselves for a longgggg time. Todd Harrison says trade only when you have an edge. In biotech, those who are good at understanding the pathways of drug actions and the design of clinical trial protocols have a huge edge over those who don't. We're talkin' huge.
The good news is, at least Celera (CRA:NYSE - news) and Protein Design Labs (PDLI :Nasdaq - news) aren't swinging $60 in a day --- which they were this time a year ago. At least I consider that good news. (Some of my volatility-junkie friends certainly don't.)
By the by, all of us institutional types are being recruited to hedge funds. After seeing the cover story on hedge funds in BusinessWeek's Feb. 26 issue, I grinned at Roger McNamee when he said, "I think hedge funds have peaked."
While cover stories generally do mark a peak in something, I dunno if Roger's right. But it's a provocative idea. I mean, brokerage firms are offering hedge funds to ordinary investors for as little as $10,000 down. When a lot of smart investors are all trying to game the market at once, we'll surely see greater short-term volatility.
So no, Virginia, I don't think this Fed cut will be especially helpful to biotech. An ecstatic blip up this week, which I presume will be eradicated in the weeks to come. Will we see the American Stock Exchange Biotech Index (BTK:Amex - news) at 300 as many technicians are predicting? I'm guessing we will because I think the Nasdaq Composite goes to 1500 at some point in the coming months. Will it happen in May or August or November? Wish I knew. Then I could finally take a vacation.
But when the BTK at 300 comes, if it comes, it'll be a whale of a buying opportunity.
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Lissa Morgenthaler runs the Monterey Murphy New World Biotechnology Fund, and has written on biotech for various publications, including Barron's and Michael Murphy's California Technology Stock Letter for more than 15 years. At time of publication, Morgenthaler was long Celera and Protein Design Labs, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Morgenthaler appreciates your feedback and invites you to send it to Lissa Morgenthaler. |
