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Monday, March 23, 2015

Daily update 3/23 Biotech valuations

SPX tried very hard today to buck the trend of the month with a consecutive up day, but to no avail.   IYT was down from the start and stayed down all day.  IWM, QQQ, were in and out of positive territory through the day while SPY remained positive until very late in the day.  It was yet another strange day with the breadth.  With SPY barely up and all indexes flat or in the red the breadth was +63% or better. We ended the day with breadth at +56%, but most indexes in the red.  A lot of stocks were only up a tad I would guess. 

On Friday we cleared the 2103-05 resistance area.  Today we closed back at the top of it.  Is this a test of it as support or are we going to go back down through it?  To go along with the strong breadth early in the day there 254 new highs.  If you just looked at the market internals this morning you would have thought it was a strong day.  However, none of the indexes rallied strongly.  Even IWM which is usually the most affected by breadth as it is a very broad index was weak.  At any rate the bulls were not anxious to push price higher today.

The futures chart shows some upper tails indicating resistance at 2106 (around 2114 on SPX).  Buyers are a little scarce up there.  At least the futures are hanging outside the top of the Keltner channel.  It may find support there for a push higher.  There isn't much more room to go down from here though.

Every other day in this rally has been a different direction.  Will the pattern repeat with an up day tomorrow?  If so we could easily get a new closing high.  On the downside, falling back down through 2103 could spark some selling.  The 18 SMA at 2086 could provide some support.  Of course there is always the possibility we will completely retrace the post FED meeting up move at any time.  Despite the apparent strength in the internals today the market seemed to have no energy on the upside.  It is not like we are extremely extended in the short term either.  This market has plowed higher lots of times from much more extended conditions.  Maybe the bulls will come back with more juice tomorrow.  If not this bounce could end up falling short of a new high in SPX.

I saw a rather interesting article on biotech valuations.  Nearly 75% Of Biotechs Have No Earnings
The title speaks a thousand words doesn't it.  There are 150 companies in the NASDAQ biotech index.  Here are some interesting stats from the article.
  • Below is a chart of the 150 companies that make up the Nasdaq Biotech Index (NBI), broken down by Net Income.
    • Of the 150 companies, in the last 12 months only 41 had earnings, i.e., Net Income, amounting to just under $31 billion
    • Of this $31 billion in earnings, just 5 companies - Gilead, Amgen, Shire, Biogen and Celgene - had net income over $1 billion
    • Just these 5 biotechs represented 83% of all the earnings generated in the NBI
  • 109 companies in the NBI lost money in the last 12 months.
  • In summary: only 41 companies in the index were profitable, which means 72.5% of biotechs lost money
  • 83% of Biotech earnings were generated by just 12% of the companies
This is an interesting look at the market cap vs income.

If all that does not remind you of the dot com era I don't know what would. 


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The information in this blog is provided for educational purposes only and is not to be construed as investment advice.