A Market Test For Biotech
After Tuesday’s close, drug developer
Protein Design Labs turned in Street-topping results on strong sales of
monoclonal antibodies using its technology. Tomorrow’s market reaction will be a
good test to see whether these biotechs can overcome the legacy of their climax
sell-off earlier this year.
Protein Design Labs
(
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PowerRating), which
develops humanized antibodies to treat disease, posted earnings of 23 cents a
share in the second quarter vs. 14 cents a year ago and analyst estimates
averaging 18 cents, according to First Call/Thomson Financial. The Freemont,
Calif.-based company reported growing royalties from monoclonal antibodies it
has licensed to other pharmaceutical firms, including Genentech
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PowerRating).
Shares in Protein Design Labs have
acted much like a stock that has undergone a sell-off from a climax run. The
stock’s mid point is 207, as found by adding the pre-correction high to the
post-correction low, then dividing by 2. As you can see, the stock rallied up to
200, then retreated. Until the stock overcomes the 207 level, presume
unfavorable overhead supply. Overhead supply is the amount of stock in the hands
of people who bought at higher levels. These so-called weak holders are inclined
to sell into rallies.
Genentech has to overcome its own
resistance tests. The stock managed to overcome its mid level of 164 3/4, then
quickly fell back under selling pressure. That gives us a new resistance point
of 178 1/4 (see Point A in chart).
