If You’re In Biotech, Consider This

  • October 20, 2003
  • Gary Kaltbaum

“Near-term,
maybe the markets pooped out with Thursday’s late-day dumping…maybe not. It
is now time to take a step back and let the fireworks begin as earnings come
out, starting Tuesday. If we continue to see reactions to earnings like
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and
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just know that I will not react to the news…I will react to how THE MARKET
and THE UNDERLYING STOCKS reacts to the news.”

That is what I said in last
Monday’s report. The news…well, it was good. On Tuesday,
Intel
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and raised guidance. The market opened to a big “pop” on Wednesday,
only to reverse the move. I have told you many times that this kind of reversal
is usually a near-term negative. I say “near-term” only because every
time I think it may get worse, the market surprises on the upside. Let’s separate
a few things out.

Near-term, I am a little worried. Here are my reasons:

I am no longer finding a plethora of quality base-breakouts. (I love that word
“plethora.”)

Many leading stocks are either extended or actually topping out…leaving them
unbuyable. For instance, look at what has happened to some of the leading SCHOOLS.


I believe the BIOTECHS are now going through a
topping-out process. The reason this may be important is that the BIOTECHS
have led the market up from its lows. Many names are gagging…and notwithstanding
what happens on its next earning’s report, take a gander at the breakdown in
Amgen
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I am now starting to consider the possibility that the past four months in the
Dow and S&P is a lot of churning. The two major indices have hardly budged
since the beginning of June. The fireworks has been in the small-mid-caps.

Sentiment remains very negative as the world is bullish. You can now add the
put/call figures to the over-optimistic camp. All this short-term talk does not change the fact that there are still plenty
of stocks and sectors in good shape. The problem is that they are not buyable
right now because of the reasons I gave earlier. I continue to believe you can
take a step back and take your time right now. If the market will continue higher,
we will know just by seeing more and more names consolidating and then breaking
out of their bases.

Gary Kaltbaum