Author: Philip Pecoraro
Covestor model: Biotechnology
The portfolio remained largely in cash for the month of April. The macro picture of the markets, technically and fundamentally, underlies my bias. Fundamentally we see that inflation is appearing in both food and energy, here and abroad. Prices for gasoline have been steadily rising as we enter the heavy U.S. driving season.
Except for a brief dip in general commodity prices coincident with increased margin requirements by the exchanges, commodity prices have been rising. QE2 is scheduled to end in June. Decreasing liquidity, seasonality and “go away in May” suggest caution.
Technically, both the S&P 500 index and the Nasdaq Composite index have bearish momentum on the weekly chart evidenced by an MACD below the zero line since mid-to-late March. Only the large cap Dow Industrial average has not confirmed and retains positive momentum. All three indices show “up-down” bullish/bearish candles on the weekly charts and have failed so far to penetrate overhead resistance. This is consistent with a topping pattern.
One can only speculate about the next few months, but my interpretation is that we are forming an intermediate top and/or rotating into more defensive large capitalization equities.
Due to the above, I am avoiding lower volume biotechs except for brief trades and exiting if the technical patterns do not materialize as expected.
I have recently exited trades in Corcept Therapeutics Incorporated (NASDAQ: CORT) and Illumina, Inc. (NASDAQ: ILMN) with small profits, and Opko Health Inc. (AMEX: OPK) with a somewhat larger loss.