Todd Harrison: Is the Biotech Bubble About to Burst?
If the past is a prologue, we would be wise to pay attention.
It's Turnaround Tuesday on the Street of Dreams and the bulls hope it lives up to its billing. After a string of disappointing sessions—an unfamiliar dynamic for those trading five years or less—we power up this pup for the second set of our five-session string.
While the focus is on Apple's (NASDAQ:AAPL) disappointing holiday quarter, one stock does not a market make, especially in this environment. As such, we'll start the day with a Random Fray, in no particular order:
Yesterday's fade lower was intuitive; a repeat performance today, not so much. With Monday's failure fresh in our heads, the odds of a similar spill decrease in kind, at least for the day, as markets typically pave the path of maximum frustration.
With that said, I'm not sure I've ever seen people freak about a 3% move like they have the past week. It makes me think more and more about where we are on our psychological continuum, per the chart below.
To be sure—and déjà vu all over again—it doesn't really feel like we're 3% from all-time highs; while some have offered that the masses are "captive to a misguided group-think narrative," my less conspiratorial take is that there's a lot of passive and parked money that has stopped trying to game the tape. It reminds me a bit of the ostrich analogy we used many years ago.
Either way, we would be wise to respect our field position following a massive move higher in the market. History may not repeat but if it has a hint of rhyme, we would be wise to see both sides.
Meanwhile, over in Social Mood, USA, it feels like its open season on activists, although I’m sure Mr. Icahn and Mr. Ackman have passed the phase where they care what other people think.
- Brandon Perry shared an interesting chart on yesterday’s Buzz & Banter, which I've included below for the collective benefit. While S&P (INDEXSP:.INX) 1800 (1850) and NDX (INDEXNASDAQ:NDX) 3500 (3600) are the next-step resistance levels, this is another lens of potential value.
Japan, meanwhile, is holding the level discussed yesterday by the skin of its teeth.
- Discipline over conviction as we edge through what is (on pace to be) the coldest month in a century.
We have, over the years, served up some meaty “bubble comparison charts” to provide perspective on a particular stock, index, or asset class. There have been times it proved early—such as Apple in February 2012—and other times it was spot on, such as The Gold Scold on September 7, 2011 (in and around gold $1,900).
We turn our attention today to the biotech complex, which has been on a white-hot tear since the market bottom in 2009, rallying 333% vs. 177% in the S&P. We track the index below using the IBB, which is the iShares NASDAQ Biotechnology ETF (NASDAQ:IBB).
A kind thanks to Michael Sedacca, who assisted with the chart.
Click to enlarge
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Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at email@example.com.
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