Recent market turmoil and the upcoming week (8/8 - 8/12)

What's happening?

We all know that job numbers aren't increasing as fast as they should, economic growth is overwhelmingly sluggish, and the stock market has just suffered its worst week since the recession.  Those of us, biotech investors, have seen once consistently profiting strategies being thrown out the window in these past two weeks.  Take a look at the incredible change in some of the highly 'promising' biotech stocks during 7/25 - 8/5 (2-wk period):

$CLSN: down 25.42%

$ANX: down 28.07%

$SGEN: down 22.72%

$BPAX: down 33.8%

$DEPO: down 32.2% 

Fueling the fire, S&P downgraded the US credit from the top AAA rating for the first in history on Friday (8/5). Middle East stock markets first reacted to this with a dramatic plunge in late Sunday morning (8/7), and it is said that the Asian markets will follow suit later in the day.  How will the US stock market react tomorrow morning?  Will another 500+ point drop occur?  Will the Fed intervene?  Is QE3 in place?  Have we reached the bottom yet (Alan Greenspan doesn't think so)?  Those are obvious questions that every investor thinks about as he/she rehearses the various scenarios of market reaction in this upcoming week.

What would I do?

While the latest financial news (i.e. S&P downgrade) could have huge impact on the market's already weakened confidence, I don't see this as the end of the world (yet) for a few reasons: 

1) S&P is not the only ratings agency (Moody's and Fitch still maintain US credit at AAA)

2) US treasuries are still among the safest investment instruments in relative terms despite downgrade 

3) Washington going to great lengths to discredit S&P in hopes to minimize downgrade impact

I foresee a broad sell-off as the market opens tomorrow, followed by stabilization, if not even a rally.  I've read/heard that many are gearing up to put their cash to work and I certainly agree that many stocks with near term catalysts, such as ones mentioned above, are heavily discounted right now.  Nevertheless, I will remain cautious before resuming full on buying mode (there are still many other factors, such as employment, political weakness, Euro debt, economic growth...etc. that add to instability).  I will do so only when I see at least 2-3 consecutive days of gains plus reversal of broad market sentiment; otherwise cash is still a valuable position!  As always, think wisely, evaluate cautiously, and act boldly - good luck! 

Reminder of near term catalysts:

$SGEN - PDUFA 8/30

$ANX - PDUFA 9/1

$CLSN - Phase III results in last Sept/Oct

$DEPO - Phase III results in Oct

$BPAX - PDUFA 11/14