How I'm Handling a Biotech Blow-Up
As choppy action makes new buys harder, maintaining conviction is a tough road.
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After a very nice intraday reversal to the upside on Wednesday, we have choppy and mixed action on Thursday with breadth running negative but the indices slightly positive.
PPI came in a bit higher than expected, but like CPI, the market doesn’t seem to believe that is necessarily bad news, although it does mark inflation. There is no longer much chance that the Fed will cut rates by a half-point next Wednesday, but that may actually be a positive rather than a negative, which means there is less likelihood of a recession.
I’m on the hunt for some new buys, but I’m staying selective and buying incremental.
Core Scientific CORZ, which I discussed on Tuesday in my Shark Bites column, is perking up on Thursday morning and attempting to break out of its trading range. I will be adding more of this name.
Long-time favorite Xeris XERS has had much improved technical action recently and is testing overhead around $3. I believe this stock is an undiscovered gem that is not appreciated by the market, but a management presentation this week was very strong and seems to be attracting some larger buyers. The improved relative strength has been a missing ingredient for a long time.
One of the dangers of biotechnology investing is binary events. I have been holding some Fulcrum Therapeutics FULC in anticipation of a run up into data that was scheduled to be released later this year. The company announced on Thursday morning that it was stopping the trial of its key drug and that the stock was down about 60%.
Analysts had been quite upbeat about the name, and there were even some upgrades last week, but negative surprises are not uncommon in biotech. When I am caught in something like this, I like to get it off my screen fairly fast, as it is a drain on my emotional capital. Usually, there is some sort of bounce to sell into, but my goal is to get rid of it fairly fast and make up for the loss elsewhere.
It is going to be tough to have strong market conviction with the Fed rate cut coming up next Wednesday. Historically, these cuts are not bullish, but the economic environment now is quite different than what was in place for prior Fed easing cycles. There is still very elevated confidence that the Fed will engineer a soft landing and as long as the market embraces the Goldilocks economic narrative, a rate cut is not going to be a negative.
At the time of publication, DePorre was long CORZ, XERS and FULC.
