The NASDAQ Biotechnology Index has been a powerhouse wealth creator over the last few years. Theindex most of thebiotechno...
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Price momentum evaporates

Published on: Mar 4, 2016

Transcripts - Price momentum evaporates

  • 1. Momentum Evaporates—But Not with These StocksThe prospect of getting meaningful, above-inflation economic growth is pretty slim these days. There isrecord sovereign debt in the eurozone, and in the U.S. China engineered an economic slowdown, and willhave a tough time coming out of it. So, where do you find growth in a stock market with limited prospects foradvancement? My answer is biotechnology stocks; traditionally a high-risk/high-reward stock market sector.And, you don’t need financial growth for biotechnology stocks to move. In my view, this stock market sectoris the most attractive for risk-capital speculators in this kind of market. I still like gold and silver, and thesecommodities belong in equity portfolios, but trading action in biotechnology stocks remains robust, even withthe broader stock market pulling back.As you know, biotechnology stocks move on events, and you can trade off news and price momentum. Agreat example is Keryx Biopharmaceuticals, Inc. (NASDAQ/KERX), which is a New York City-basedcompany working on treatments for renal disease, otherwise known as kidney failure. This stock gotoverbought on the stock market (a great momentum trade) in the first part of the year, then corrected tosuper-penny stock status. But, the position has been recovering since May, and the stock has displayed realprice momentum, up 60% since. Keryx’s stock chart is below. Chart courtesy of
  • 2. The NASDAQ Biotechnology Index has been a powerhouse wealth creator over the last few years. Theindex most of thebiotechnology stocks within the entire sector universe that are worthy of consideration.One such company is Arena Pharmaceuticals, Inc. (NASDAQ/ARNA), which has been on fire all summer.This San Diego, CA-based company is working on oral drugs for cardiovascular, inflammatory, and centralnervous system diseases, with several products in development. Among most biotechnology stocks, thiscompany’s price momentum has been exceptionally strong, moving from the $2.00 per share level in lateApril to just under $12.00 a share in July. The company’s stock chart is featured below. Chart courtesy of www.StockCharts.comPlaying price momentum and getting out before the party ends are key when speculating in biotechnologystocks. The broader stock market looks to have topped out (at least for now), and price momentum amongother stock market sectors is tough to come by.There are very few industry groups in this global economy with growth prospects above the rate of inflation.Healthcare and drug development are poised to outperform most other sectors, and biotechnology stockswill continue to provide good trading action, because institutional investors continue to participate in thesector for capital gains.

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