Biotech & Pharma, Bubble or not?

[bankedout]

I have been avoiding Biotech and Phamaceutical stocks over possible Bubble concerns. However I am looking over the past Internet Bubble:



Look at how steep the slope was in the late 1990s.

Comparatively:





The slopes seem less bubbly. What is your opinion?

[bankedout]

A couple of individual stocks that have been big winners in this run:



BIIB's slope was steeper in the past.



compared to AMZN in the late 1990s:



Thoughts?

[dg]

One way to look for bubbles is to compare volume action with price action. When price trend rises while volume trend shrinks, a turn around is often the result. And when that happens, look for each trend to reverse together.

Another indication of a potential turn around is the classic doji.

Biotech seems to be doing both every so often -- but not yet over significant spans. So I would say no bubble yet. JMHO of course.

[bankedout]

I think if we do a study involving volume of shares traded, it would be better to do it on a leading stock in the industry rather than an ETF.

BIIB would be a good choice to study for the Biotech industry.


click on thumbnail for larger chart

[dg]

bankedout:

My personal opinion is that your study should focus on what you intend to invest in. If you are considering an individual company stock, then by all means that should be where you focus. On the other hand, if you are most interested in what a sector is doing, you should watch something that shows the generalized movement of the sector as a whole. For me, FXH represents both.

[bankedout]

Volume doesn't necessarily effect price the same way in exchange traded funds as it does with individual stocks. That is why I suggested studying a leading stock in the group.

You could look at the NASDAQ Biotech index components:



www.ishares.com/us/products/239699/ishares-nasdaq-biotechnology-etf

[dg]

I never contended that volume affects price. I contended that when price and volume TRENDS oppose each other, one should be alerted to expect a reversal about to occur. BTW, this doesn't imply that a reversal cannot happen without this condition. Dojis help too.

Secondly, an individual company may not necessarily reflect the behavior of the group. Especially biotech companies are notorious for being individually affected by singular news situations.

[blygh]

I think you are right on dg. Price rises on low volume are often due to speculators 'juicing' the stock to lure momentum investors. I have made money shorting high flyer biotechs. I think they get bid up on take over speculation (DNDN went from 3.45 to 57 to 0.16). It is very difficult to assess the impact of drug development. DNDN's Provenge for prostate cancer was a break through that was quickly leap froged. Big pharma pricing policies cannot be sustained. I continue to own several speculative small caps biotechs VICL XOMA ZIOP ARNA VVUS but I have sold my favorite EFT FBT.
Blygh