Three different risk profiles for three biotech stocks. (July 02, 2012)
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Dan, here at StockMarketMentor.com on Monday, July 2nd. We’re going to look at a couple biotech stocks here. Why are we doing that? Well, biotechnology has been really leading for quite some time. I looked at all of the stocks in this index and there are many. A lot of them seem really, really risky to me. I will show you one that doesn’t seem risky and one that, unless you know something about glioblastomas, and their treatment, in my view, it’s kind of risky, but this is why I’ve got, in my biotech notes, DDDB. That stands for Danny, don’t do biotech. I’m not smart enough to get this stuff, and frankly I don’t really feel like spending the time on it because there are over seven thousand tickers that you can trade, none of which are biotechs. I’ll leave that to the other guys, but I will tell you this, if you don’t want to mess around with that stuff either, buy the index just buy the biotech index you’ve got diversification within a very narrow focus and that is biotech so here you’ve got resistance right about $126.00, $127.00 or so the stock is now pushing away the ETF whatever. Where is it? Well, it’s at an all time high, which means there isn’t a lot of resistance above it except that, that’s caused by profit taking i.e. those folks that bought down here that are more than happy to say, “You know what? I think I’m done with this, I need to get out of there.” We don’t see signs of that happening; we still see some pretty good volume. This is not a good buy point here it’s actually quite risky because the fifty day moving average really defines support, and so any pullbacks, say to this level, would actually be a better entry. But when you look at this, we’ll say this is $125.00, this is $133.00 right now; what is that $8.00? So it’s $8.00 above what I would say is support that gives you a risk of about 6 percent. So not ideal, but it’s frankly acceptable to buy 6 percent above an important moving average like the IBB. If you want to get a little more, let’s just say, a little more sporty, you can do Alexion Pharmaceuticals ( $ALXN Alexion Pharmaceuticals, Inc. ), this is Cramer’s 2012 stock pick and it’s doing pretty well. This is just coming out of a cup, a little tiny handle there, and now this looks like it’s resuming its trend. Well, think about this. This is the up-trend that it’s had before, after a base, then after this kind of base, this could just be starting. This is not a bad time to be building, let’s say it’s not a horrible time or a time that you shouldn’t start building a position in Alexion ( $ALXN Alexion Pharmaceuticals, Inc. ). It’s certainly a heck of a lot worse than if you had taken it down here at the twenty day moving average, but if you’re having trouble getting in then do this, take a small position at $103.00 as a part of your plan. Don’t be winging this; don’t be doing this on the fly, that’s for knuckleheads. As a part of your plan you say I’ll take some stock here at $103.00, if I get a pull back closer to the fifty day moving average say, you know somewhere down here in the mid nineties. Which is actually where resistance was here, if this stock pulls back to the mid nineties, then I plan to buy x-number of more shares; thereby giving me a cost basis of, and you would know where your cost basis is in the stock and exactly how much stock you would own. That should be a part of your plan. You don’t just pile in here because you think the stocks moving up, and then when the stock pulls back to the fifty day moving average start improvising and saying, “Oh well, maybe I’ll average down.” No you’re getting too big a position there, don’t do that, you take a small position now look to plan on taking a little bigger position on a pull back and then you go from there. Now you say, what if the stock doesn’t pull back? Well, then aren’t you glad you had some? You didn’t have the greatest buy point in the world the least you got some and you are profiting and you say yes, but I would have made more money if I just bought what I normally buy. Well Horshack, that’s fine if you knew for sure that the stock was going to keep doing that. Then you could buy no amount of stock that would have been sufficient to satisfy you, you should sell your house, sell your car, get all of your money and put it into the stock so that you can enjoy the ride here. The bottom line is nobody knows for sure except the fools and the liars. The rest of us are just trying to make some money and manage our risk. So you take a small position here because the stock is extended. And by the way, you can say, well Dan I don’t want to take a small position here because the stock is extended. I would say fine, good for you, that is a totally prudent move. I don’t like to chase stocks because what I find is, when I chase them, a lot of times they move up a little bit I say, I was sure glad I got on board and then they will end up pulling back and I wind up wishing that I had held back because I’d have had a better entry. So the point is, if you insist on buying Alexion ( $ALXN Alexion Pharmaceuticals, Inc. ) I’ve just told you how to do it. If you say, well I want to wait for a better entry, I’ve just blessed that too because you don’t have to be on every single stock that continues to move higher, you can just consider that a missed opportunity. Speaking of one that’s moving higher, this is in the high-risk category, this is the glioblastoma treatment. A lot of biotech companies are doing this. Glioblastoma is a malignant brain tumor. I know nothing about this stuff although I know treatment of those things is good. It’s 9 percent up today, look at the volume, heavier than average, coming out of the volatility squeeze. It would’ve been nice to have bought it closer to the fifty day moving average, unfortunately, that was then, this is now, your at $6.00. Look to this actually to continue to go, because this is what these speculative stocks do. This is a little cup here, I would use today’s intraday low of $5.51, use that as your basis for the stock, that’s about ten percent below where the stock is right now. So if this stock falls below today’s intraday low of $5.51 then this is a stock that you really don’t want to own because that will reveal, that fall back, will reveal this to bend kind of a short- term blow off top. That’s your management of your downside risk, you put a stop just underneath there, this is a fast mover, 1.9 million, so almost 2 million shares traded today. If this is really under accumulation, this is going a lot higher because they’re just aren’t that many shares out there to be grabbed. So anyway, those are three ideas for you on our Free Chart video. Members get over to the Strategy Session, I’ve got a lot more to cover. Free Chart