One thing I have noticed is that many of my RSI 93 candidates are biotech stocks. Today I shorted PSDV at an average price of $5.86. I think it actually makes sense that biotech stocks are often the stocks that go parabolic. First, these stocks generally have a good fundamental story behind them. With drugs, it is easy for for fundamental traders to imagine that a particular drug will cure cancer or other horrible diseases and therefore go from $1 to $1000 in a matter of days or weeks. Second, many of these stocks are thinly traded which means a few participants can move the stock in a hurry.
I picked this comment off the PSDV message board from yahoo finance:
I think this will eventually pull back but it will be after it hits 10. This is one of those stocks that if you are waiting for a pull back you will never get in and you’ll miss huge gains. it is fun watching it go from 3 to almost 6 now but it will be just as much fun watching it to go to 10 and then 20. I wouldn’t be surprised if this is eventually bought out but I hope that comes further down the road in the 20’s or higher.
I think it really captures the bullish euphoria which occurs when these stocks get extremely overbought. Perhaps this person is right and PSDV will eventually goto 20, but with RSI at 93 there will almost definitely be a cool down and consolidation before it can move higher. The stock is up 160% over a 30-day period and this person is still expecting $10 in short order without a pullback.
I have also received several emails regarding the TED spread. I’m short on time tonight, but I will have more time later this week to address this topic.
