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Todd Harrison: Is the Biotech Bubble About to Burst?

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If the past is a prologue, we would be wise to pay attention.

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Editor's Note: Todd posts his vibes in real time each day on our Buzz & Banter.

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.
Chart of the Day

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

R.P.

Twitter: @todd_harrison

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No positions in stocks mentioned.

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 todd@minyanville.com.

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.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

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