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Trading Biotech With ETFs

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Clean, easy way to handle sector.

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Editor's Note: Our own Prof. Kevin Depew appeared last night on Paul Kangas' "Street Critique" program. The following is a transcript provided for the benefit of ye faithful.

Paul Kangas: Tonight's "Street Critique" guest thinks we've hit a near term low in the stock market. He's Kevin Depew, executive editor at the financial information website Minyanville.com. Kevin, good to see you again. Welcome.

Prof. Depew: Thank you, Paul.

Kangas: Well, we certainly saw a healthy move higher in the stock market today, but it has been downright scary for investors recently. And do you think that that really amounts to a major capitulation, that the worst is behind us?

Depew: Well, I think if you go back and look at 1998, when Long-Term Capital Management had their scare, this is a little bit similar. Some of the things we've written about on Minyanville is that unlike Long-Term Capital Management, in which that was the potential cause for dislocations, Fannie Mae (FNM) and Freddie Mac (FRE) were really the symptoms of dislocations that have been going on for quite some time. So we probably have seen some kind of capitulatory low, but I don't think it's the bottom by any means.

Kangas: Well, the financial stocks have taking a real drubbing, and now they showed some real life on the upside. Is this the time for bottom fishing in that group?

Depew: Well, you know, if you're a short-term trader, you could do that. What I go back to is when you look at the Japan banking crisis in the early '90s, those stocks had an almost identical move down that we've seen in the Philadelphia Banking Index. After that, over the next 14 months, they rebounded by 80%. That would put the Philadelphia Banking Index somewhere around low 80s. But that's a traders' move, because ultimately, they went on to lose over the next decade 90 percent from there.

Kangas: So it's just an interim thing on the upside for the financials?

Depew: That's what I take on it. If you're a short-term trader, that's fine. But for retail investors, it's better to leave that volatility to some kind of professional traders.

Kangas: OK. What areas are you looking for, for good upside potential?

Depew: Well, Paul, we're getting close to the time when there is a seasonal move in biotech. It started a little bit earlier this year than usual. Normally, it's in August. But I think part of the rotation away from financials, the longer-term rotation away from energy stocks that have performed so well, some of that demand is creeping into biotech now.

Kangas: Well, to that point, are there some specific stocks that you're keeping an eye on in the biotech sector?

Depew: Yes, the easiest way to play it is I think with the iShares Nasdaq Biotech Index ETF, the symbol is IBB. I do own shares in that, by the way. I think that's the easiest way to play it. I'm not crazy about they're weighting in Amgen (AMGN), but there are some other components there that I do like.

Kangas: OK, how about another choice?

Depew: The other one in there that's in that ETF is Biomarin. The symbol is BMRN. I think that that's another way to play it. And the third way would be with Genzyme, symbol GENZ.

Kangas: Let's have a chart on that. And we see it's been getting strong recently.

Depew: That's right. There is some demand creeping in. They are ahead of the seasonal patterns, and I think that that usually is a nice run up until the fall.

Kangas: OK. Now you said you own the ETF. How about Biomarin and Genzyme? Are you personally an owner of those two stocks?

Depew: No, just through the ETF, Paul.

Kangas: So biotech is your favorite in this market.

Depew: Biotech, and for the retail investor at home, you just have to stay away from financials for now.

Kangas: OK. We got 20 seconds left for a last thought.

Depew: Well, the last thought is what I talked a little bit about on Minyanville, that there is a depression atmosphere going. Banks have lost $1 trillion. It's a huge amount, but that's not the end of the world, you know. We still will have to -- we'll have to send our kids to college and take care of the things that we take care of, and we'll get through this.

Kangas: So, as they say, you're cautiously optimistic.

Depew: That's right. A defensive pessimist.

Kangas: There you go. Thanks, Kevin, for sharing your insights with us.

Depew: Sure, Paul.

Kangas: My guest, Kevin Depew of Minyanville.com.
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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