The Biotech sector

[Pascal]

The Biotech/Drugs sectors are probably offering the most interesting investment opportunities.
The Health group is certainly the weakest of all the groups and among this group, both Biotech and Drugs look rather negative.



the Drugs sector includes ENDP, VRX, TEVA, which are under big pressure (High debts, high drugs inventories, questionable accounting,) but it also includes the largest drugs companies, such as PFE/AGN (whose merger could be questioned as it hangs on TEVA being able to swallow the 40B$ generic business of AGN, which looks more and more unlikely.)



Selling in the Biotech sector seems to be slowing down now. Hence, an oversold bounce is something that we should expect.



I believe that the MF on the Biotech sector is still negative due to GILD. This is a "red flag". I have no explanation regarding this continued selling, except that maybe some large fund needs to raise cash.



I would like to analyse here ICPT and VNDA. Both companies are expecting a FDA announcement soon.
Both are testing a recent high and could move in either direction.





If we look at the pyramid data for both stocks, ICPT looks much more interesting than VNDA.





Let's now use the Breakout Calculator in order to evaluate long trades on a Breakout on Volume and Short trade on an Overbought into resistance.

1. Buy trade on a Breakout on Volume

We can see below that VNDA offers good stats if it breaks out on strong volume



But so does ICPT



2. Short trade on an Overbought into resistance

VNDA also shows interesting stats for shorting here



ICPT however tells us NOT to short here



Of course, these are only statistics. If you believe that VNDA will go down and ICPT will go up on a FDA announcement, then the best might be to use options.

I have a 1/2 long ICPT and will look at using options in order to have a clear risk cap.