An Investor's "Wave",,,

03/31/2006 12:00 am EST


Michael Shulman

Editor, Short-Side Trader

The ChangeWave family of newsletters is an industry powerhouse, offering several exceptional advisory services. Michael Shulman offers the ChangeWave Biotech Investor, which provides industry leading advice from a longer-term investor perspective.

"Biotech stocks have creamed the market during the past year, and they will continue to do so. "These are the great growth stocks. Biotechs are companies primed to ride up on the declining health of the Baby Boom generation. And, certain technical indicators tell me they are in a very strong condition regardless of their current volatility and the downright pessimism in the general market.

"The iShares Biotechnology Fund (IBB ASE) is an exchange traded fund on our Buy List and it is representative of the sectorexcept for a heavy weighting with Amgen at about 16% of the value of the IBB. The fund has a huge short-interest ratio of about ten trading days a very long time for a short position and an indicator there are a number of biotech bears among the hedge fund types on Wall Street.

"A move up in the IBB in even a modest way could produce some serious short-covering, which creates more buying, which, in turn, increases the need for shorts to cover and not with a blanket. The term ‘short-covering’ means traders, speculators, and hedge funds that have shorted a stock are buying it back on the open market, that is to say ‘covering’ their positions and getting out of a real or potential hole as the stock climbs.

"Money flow into pure biotech funds has slowed (even reversed) and yet stock prices remain in sold shape a very bullish sign. As an example, one of the better known funds, Fidelity Select Biotechnology Fund, has seen cash outflows even though the fund value is moving higher. Someone apparently thinks money is going to flow our way. So hang in there. The biotech sector will outperform."

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