The Rise of Biotechs May Be Attracting The Shorts (PFE, MRK, BAX, BDSI, SPPI, GNBT, AVII, CEGE, BBH, GILD)
Biotechnology stocks have risen faster than any sector in the past 30 days, although the new short-interest data suggest traders are now increasing their directional bets against the group.
Large biotechs including Pfizer Inc. (NYSE: PFE) and Merck & Co. (NYSE: MRK) are in the top 10 of all large-cap stocks with the greatest increase in the number of shares shorted. And biotechs including Baxter (BAX) are among the stocks seeing a greater than 50 percent increase in short interest from mid-June until the end of that month, the most recent short interest data available.
Perhaps one reason biotechs are an increasing near-term target of the shorts is that the group’s price movement has been counter to the overall market. The price of all biotech stocks with a market cap of $1 billion or more is up 3.6 percent in the past 30 days, vs. a drop of 6.2 percent for the S&P 500. Biotech is the only group to advance more than 3 percent over that time period, other than health care services, up 3.2 percent.
Pfizer is not a stock most traders bet against, with only 3.5 percent of its float sold short. But the short interest of Pfizer rose 16.2 percent to more than 235 million shares by the end of June. Merck shares, with a heftier 6.9 percent sold short, saw its short interest rise 9.1 percent over the same time period.
Some smaller biotech names have seen a very large short interest increase, including BioDelivery Sciences International (Nasdaq: BDSI), up 93 percent. Spectrum Pharmaceuticals Inc. (Nasdaq: SPPI) short interest is up 54 percent. Biotech stocks with at least a 40 percent rise in short interest include Generex Biotechnology Corp. (Nasdaq: GNBT), AVI BioPharma Inc. (Nasdaq: AVII) and Cell Genesis Inc. (Nasdaq: CEGE).
One of the biotech ETFs that is watched most closely by traders is the Biotech HOLDRs (BBH). One of its top holdings is Gilead Sciences Inc. (Nasdaq: GILD), which makes up roughly a third of the index. Its stock saw a 17 percent increase in its short interest to more than 20 million shares.
The biotech Holdrs in early July rose to levels not seen since September 2008, although the index has fallen early this month after creating a bearish candlestick pattern. The fall occurred not not long after MACD, an oscillator watched by technical traders, turned negative — Mike Tarsala
