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Biotech chart hijinks


This biotech sector is snappy!


A couple of weeks ago, I noted the volatility inherent in biotechnology makes investing in the sector based on technical analysis something of a contact sport. I figure it is probably instructive to grab a chart every once in a while for a reality check.

Examine the following chart and honestly tell yourself whether you would be long or short. The middle graph is volume and the bottom is a representation of money flow. I've hacked out the name from the chart to help keep you honest.

If you decided you would be long at the end of the day represented on the right side of the chart, congratulations. OSI Pharmaceuticals (OSIP:NASD) made you 138.86% from the close of $38.14! If you were short, it's worth noting the stock opened at $84.60 (-54%) and never traded lower than $77 (-50%). Ouch.

Since we all use different metrics for our technical analysis, I invite you to keep your honesty hat on and punch up OSIP in your favorite charting software. Roll the chart back so the right-most data point is the close on April 23rd. Run through your favorite indicators and decide whether you would have been long or short.

I know from my e-mail (keep 'em coming!) my fellow Minyans are increasingly interested in the biotech sector. If you're a chartist and you haven't played here before, I invite you to do this exercise regularly with the big 'biotech story of the day' as a gut-check on your trading decisions. As OSIP shows, sometimes these things move so fast normal loss-management strategies simply go out the window.

No positions in stocks mentioned.

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