Author: Phil Pecoraro
Covestor model: Biotechnology
Disclosures: Long ILMN, ALXN, KH
As of 6/15/11, the markets have completed six weeks of retracement from the May peak on the S&P 500. A major area of support for that index lies around 1230.
As mentioned in my last report, I believe the pullback corresponds to seasonal weakness, an indication we are returning to a more “normal” annual market cycle. Ongoing uncertainty in the European Union’s debt crisis and the interminable debate and political posturing over the U.S. debt ceiling are no doubt contributors.
Nearly all of the biotechnology issues the model has previously held have pulled back or in a few cases (Illumina, Inc. (NASDAQ: ILMN), Alexion Pharmaceuticals, Inc. (NASDAQ: ALXN)) are forming new technical bases. The inverse biotechnology ETF (ProShares UltraShort Nasdaq Biotech (NASDAQ: BIS)) has been rising towards its bearish downtrend line. A pullback from that trend line would be a signal that biotechnology stocks can be purchased again.
No one can say when the correction will end, but I suspect a near-term bounce and then a test of the S&P 500’s 1230 area will occur. Whether we head lower before the fall remains to be seen. I am waiting for a clear signal that a new uptrend has begun before committing new funds to the markets.
One trade from May was China Kanghui Holdings (NYSE: KH), a domestic developer, manufacturer and marketer of orthopedic implants in the People’s Republic of China. It is a thinly traded issue. Since we were beginning the correction at the time the trade was entered, I held it only briefly. Interestingly the stock continued to run up well into the market correction.
The healthcare sector has held up well in this market and should afford us some very good opportunities as we exit this pullback.
