Time to Sell Biotech Stocks?

Not yet, says Weeden’s Michael Purves–but it’s sure time to hedge. He explains why:

Special to The Chronicle

Hedging biotechnology stocks once again appears timely. This sector, a stand out in 2012 and 2013 is still outperforming the broader market (iShares Nasdaq Biotechnology ETF (IBB) up 12.4% ytd vs S&P 500 up 7.5%). None the less, we think this sector is increasingly vulnerable to sector rotation. Should a broader sell off occur, this sector will likely be among the most aggressively sold given the very significant gains. The technicals are weakening and the recent rallies appear to be more squeeze driven. This sector may have enduring fundamental legs, but investors should remember that the March sell off brought the sector down 25% in six weeks.

Biotech stocks aren’t falling much today, however. The iShares Nasdaq Biotechnology ETF has dropped 0.5% to $254.31, while Biogen Idec (BIIB) is off 0.3% to $335.85 and Amgen (AMGN) and Regeneron Pharmaceuticals (REGN) are little changes at $122.25 and $304.41, respectively.