Four Biotechs on the Speculative Side

Biotechs have been outperforming the broad market since the major indices turned lower in May. Cash flows into this speculative group make sense, because many investors are searching frantically for decent annual returns. Will the recovery effort have legs or fizzle out like prior attempts to jump-start this formerly dead sector?

On Monday, I reviewed sector exchange-traded funds, noting recent technical improvements driven by renewed interest in big-cap components like Genentech(DNA Quote) and Amgen(AMGN Quote). However, I also cautioned that progress had been incremental so far and that these issues needed another round of committed buyers before moving higher.

Today, let's extend our view toward smaller and riskier members of the biotech community. These are the startup and research firms that show great promise but weak revenue. It's an interesting subset less affected by broad selling pressure; that is a good thing when lunatics are running the market asylum, like they are this July.

Just keep in mind these issues can move violently after key research announcements or FDA rulings. After all, many of these firms are one-trick ponies that have just a few promising drugs in their pipeline. They can easily lose 80% of their value overnight if research doesn't pan out, or if a competitor releases a better drug.

Finally, note that my review approaches these speculative issues from a purely technical standpoint. Readers looking for deeper data on the fundamentals driving these companies need to check out RealMoney's resident biotech expert, Adam Feuerstein, and find out everything you ever wanted to know about these stocks and this unique industry.