Dear Mr David, I guess I have really missed the boat after so many months of gains. Do you think the bio tech sector is still a good buy at the moment for medium to long-term investors? Thanks and have a great weekend ahead.

David Fuller's view

Thanks for your interesting question of general interest.

You are certainly not alone in missing this leading momentum play.  Is the biotech sector a good buy today?  I would say it is an expensive buy with good medium to longer-term potential.  Will the bubble eventually burst?  They always do.  Therefore, if you buy into a momentum play that has already run a long way, but is still in form with a consistent trend, I would not invest more than a third to a half of the capital which you have available for this trade / investment.  If it continues higher, that would give you an opportunity to protect your position with an in-the-money stop, greatly reducing your risk.  If it continued to move higher, you could gradually raise the stop to protect more of your profit, but do not make it too tight or it will almost certainly be triggered by what might be only a minor reaction.  However, if it accelerated dramatically, that would be climactic action.  In that situation you could tighten the trailing stop considerably because the strongest market in the world will eventually become the weakest when it loses upside momentum.