Biotechs just might be getting ready to bungee-jump again.

The Nasdaq Biotech Index, the main measure of biotech value, fell 5.4% in afternoon trading to 1,273, with the hardest-hit majors including Medimunne ( MEDI), down 12%, Immunex ( IMNX), down 10%, and QLT ( QLTI), down 11%. Some of the action likely reflected the move back into tech and Net shares following Motorola's ( MOT) solid earnings Wednesday and Yahoo!'s ( YHOO) strong numbers Tuesday.

On the Upswing
Biotechs rebounding from May's doldrums

Source: BigCharts

Biotech investors have seen this before, in all its bloody glory. The big shock came in early March, when the index rocketed to 1,619 in just a few months before plunging to around 850 in May. The volatility followed years of slumber when some biotech shares could be had for the price of a subway token.

So now investors seem unfazed, waiting for the bounce back.

"It's a change in sentiment," says Laurence J. Blumberg, principal of Blumberg Capital Management, a New York biotech fund. "There was huge irrational buying and overvaluation in February and March, a contraction in April and May, then a run in June. I suspect we will now give some of that back."

Blumberg says he's short a number of biotech stocks, anticipating that momentum traders will drive down prices the way they drove them up in March. Still, he said, the industry is fundamentally in good shape, and he expects bargains to be plentiful soon enough.

Other long-term biotech bulls, like David Saks of the $200 million Gruntal Medscience fund, are looking to pick up cheaper shares in blue-chip biotechs such as Immunex, Affymetrix ( AFFX), Andrx ( ADRX) and even drugmaker Schering-Plough ( SGP).

"It's been a hot hand and it's done very well," says Saks. "It's realistic that the stocks give some of their gains back."

No one is willing to predict when biotech shares will perk up, whether tomorrow or next month. But some observers see second-quarter earnings as the determining factor.

Biogen ( BGEN) this week reported slightly stronger-than-expected earnings, and it's likely that biggies Amgen ( AMGN - Get Report), Genentech ( DNA) and Immunex also will post strong numbers, analysts say. All four companies have profitable drugs on the market, making them easier to value and thus somewhat less prone to the volatility that regularly afflicts more speculative biotechs.

Robert Toth, biotech analyst with Prudential Vector Securities, says tech and biotech stocks appear to be on a seesaw these days, as hot money looks for strong returns. "There's a pretty good correlation between tech and biotech stocks," says Toth.

Agrees Micheal King, analyst at BancBoston Robertson Stephens, "I think it's just profit-taking and rotation into tech and nothing more than that."