Weekly thought on $IBIO and the general market

I’m either out of touch

or

Lost my groove

or

Simply confused about what is going on at the market right now. The stocks that I’m keeping an eyes on are struggling to recover from recent decline and their momentum are nothing like the DJIA and the SP500 that were making new historical high practically on a day-to-day basis this week.

What am I missing?

My best guess-> Sector rotation.

All the money are flowing into the best stocks (probably the ones associated with Trump’s “Maker America Great Again” movement that are part of the DJIA and the SP500. Unfortunately, the kind of stocks that I’m interested in are not part of these groups. Hence the disparity between what I thought was a weak market in the face of the DJIA and SP500 making new historical high.

Now my mind starts to think about the possibility of the SP500 getting ahead of itself and setting up for a mighty fall.  It’s like watching a sharp foul baseball that shoots straight up into the air and seeing momentum slowing down on its ascent before turning around and starts a gravity fall.  And when it finally falls, it is going to bring everything down with it; including the ones that did not participate in this history making rally. Now, just because I’m thinking it doesn’t make it so.

Giving my “personal” out-of-touch feeling, I decided to liquidate most of my positions to raise cash just to be safe.  Yeap, my safety protocol call kicked in during what looked like an inappropriate time to do so.  It’s quite a disharmony between my feeling of the market and the actual general market movement itself.

When in doubt, I play safe.

Another development this week was Trump’s intention to lower drug price as stated in the Time Magazine interview:

“I’m going to bring down drug prices. I don’t like what’s happened with drug prices.”

Source: http://time.com/4591183/time-person-of-the-year-2016-donald-trump-interview/

This reminded me of Hillary Clinton’s last year similar soundbite that started a declining trend on biotech sector which I got out too late holding $AMRN so I’m not going to repeat this lesson again this time.  Thus, I closed my positions on $AMRN and $CARA without a care where it would go next.  The way I see it, it makes sense whether we like it or not that drug prices need to come down.  By coming down, insurance premium can come down as well too due to not having to force insurance company to pay the high drug prices which ended up passing the buck to consumers paying high insurance premium. Basically, the indirect result is that the investors of drug companies are being sacrificed for the benefit of cheaper insurance premium for the mass.

Both $AMRN & $CARA attempted to rally on Friday but frizzled out by end of day which was not surprising to me.  Even the Biotech Index $IBB frizzled out as well.  However, until trial results of these two great stocks prove efficacy, the price trends may be affected by the overall biotech trend direction. Of course, once the time frame is running close to trial results, price will eventually climb back up then.  I’ll look for opportunity to buy back $AMRN and $CARA at lower price if possible.

What about $DMRC, how come you got out of it?

It has to do with price action not following the Nasdaq upward movement.  Since $DMRC is a low float and low volume trading stock, I fear that a collapse of the DJIA. SP500, & Nasdaq will bring it further down. However, in the absence of major correction in the near future, I may look for a way to buy back shares.

So that left me with the only stock in my main port which is $IBIO. I’ve been accumulating more shares this week as sellers continue to hammer the $0.40 to $0.41 cents level.  And I’m glad to see that I’m not the only going picking up shares at these prices.  Thank you very much to the sellers for this week bargain price.

One thing I like to add about $IBIO is that Trump’s goal of lowering drug price will actually benefit iBio plant-based process ’cause it is a whole lot more cheaper than using traditional process. It is stated in the video below:

Go to 35:32 min on the video and you will find out how much cheaper plant-based process is compared to traditional process. Not to mention that if the fibrosis treatment turns out to be highly successful, iBio doesn’t need to charge arm & leg for the treatment which fall right into Trump’s goal of low drug price.

Since I’ve some reservation about the recent rally, I bought a small position on $SPXU late in the week to test the water.  Obviously, by closing bell on Friday, I cut my small losses but leave a tiny position to remind me to look at it again on Monday.

So by mid-next week, the true test of market strength will be when Fed raise interest rate for the first time after a long long hiatus. By now, there are expectation of an interest rate hike in December.  Below is an excerpt from the article- Fed Could ‘Preserve Credibility’ With December Rate Hike

And expectations of an inflationary bounceback under Trump’s fiscal stimulus policies could force the Fed to move quickly, rather than pull back.

“We do not believe the election results have changed the Fed’s outlook,” John Canally, chief economic strategist at LPL Financial, wrote in a research note last week. “As it stands, we believe the Fed is on course to increase rates at its December 2016 meeting, with another [two to three] increases in 2017.

If market can hold its gain after the interest rate hike, then this rally may have leg and I may abandon the fear of correction.

Due to my giving back unrealized gain in $AMRN and $CARA after Trump’s statement on drug price from the Time Magazine was released, my port did not gain much for the week.

Current positions:

Main port (no margin): IBIO  SPXU and the rest is cash. (up 33.8% YTD)

Trading port (with margin): IBIO down 23% & $MENXF down 22% on positions only and up YTD on port. Also added $GRWG to invest in the cannabis sector.

My 2 cents

From my camera:

friday-afternoon-027

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Categories: Daily trading Journal, trading journal

Tags: ,

4 replies

  1. Like you, I read the Trump statement and expected the impact. The question is, how will he achieve it?
    1/ Allow Medicare etc to ‘negotiate’ drug prices and use their ‘buying power’ to drive prices down. But if pharma cant make a good profit following their great $ risks, it will profoundly limit research…..I dont think America wants that.
    2/ He may State fund research (by tax manipulation/reduction) to subsidise pharma’s risk. This is just a $ transfer from US healthcare system to the tax system.
    3/ He may reduce regulatory costs/timescales by shaking up the FDA. If he can reduce the development costs/risk, Pharma can sell it cheaper and still do well. Thats my bet.
    4/ (Please add your own ideas to the list)

    • 5. He may set up price increase ceiling so that no drug company can buy a successful stable drugs that have been saving lives for decades but with little profit margin and then turn around and sell it at exponential price increase such as from $7.50 to $750 per pill.

      6. Set up Tier system so that new drug with no competition can have more freedom for price increase to recover R&D expenses. Each lower tier will have more restriction on pricing.

      7. Allow foreign competition (as long as they pass FDA screening) by lifting restriction on drug import.

      Thanks for the comment.

      • Thats the point….the market read it as ‘Prices will decrease so pharma will make less money, so your shares will be worth less …..SELL! (Understandable knee jerk reaction) But reality may translate this quite differently. Theres many ways to achieve a political aim. Watch that space.

      • The reality is that drug companies will make less money when policies are put in place to control pricing. So the biotech sector may suffer until they find a way to accommodate the new policies by finding new way to cut costs or improve testing efficiency. Of course, FDA guidelines may needed to be revamped so that R&D expenses can be controlled by having a more efficient and effective drug trial system. Perhaps new technologies will allow for efficient and effective drug trials.

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