Biotech Stocks Fall Result in Record Intraday High in S&P 500 Followed By Momentum Investing

Momentum Investing

Biotech stocks fall on Friday causing initial gains on the part of investors. As a result, the S&P 500 has witnessed a record intraday high. Later, investors considered this a continuing trend and booked profit in momentum names. S&P is currently 1862.52 but it went high to 1883.97.

The decliners were Biogen Idec Inc (NYSE: BILB) which is 8.2% down from previous closing of 347 and Gilead Sciences Inc (NYSE: GILD), 4.6% down from 75.53. Biogen Idec Inc closed at 318.53 and Gilead stood at $72.07 at the day’s end.

Gilead recently introduced a drug called Solvadi which cost customers $1000 per pill. The drug is for the treatment of Hepatitis C. Lawmakers in the United States have asked the company to justify the high cost. Health insurers and medical programs in the state have been opposing the drug.

A New Jersey-based trader name Joe Saluzzi said, “They’ve been selling them – the techs in particular, as well as the biotechs, even more, particular there. Obviously, it’s a momentum sector, and all the momentum names are getting smacked around…”

As protests against the drug are on and legal procedures seem underway, momentum investment appears to be a wise decision.

While S&P set a new high, Dow underperformed. It closed at 16,302.77, down 0.17% from previous closing of 16,331.05. Dow is currently nearly 1.6% down from its high at the end of 2013. Robert Maltbie of Millennium Asset said, “The Dow has a very low representation of things moving the market, like . . . Netflix, social media stocks, solar stocks and biotech…”

Mr. Maltbie’s analysis is correct. The biotech industry has been seeing an outstanding growth but Dow doesn’t have significant exposure to this industry. Healthcare shares altogether are up 5.2% this year. The healthcare stocks make up 13.4% of S&P 500 index while it accounts for only 10.3% of Dow. S&P clearly has an edge over Dow on this.

Before Friday, S&P saw the high number of sell-off below 20 days SMA and the previous ATH on January 23, 24. S&P’s rising to a new ATH has been considered by many as a technical breakout. However, some analysts are doubtful that this trend will last long.

One of them said, “From a purely technical point of view, this morning’s intraday all-time high is bullish and suggests higher prices. However, there is at least one Elliott Wave count allowing for a fake-out breakout, followed by a drop lower”

Still, S&P is up 1% this year and might continue to go up till the biotech boon is there.