Update at Close 11/9/18 Remain Cautious as Rally Fails
The NASDAQ down 1.6% and Russell 2000 down 1.8%, sold off killing hopes of a continued Post-Election rally. The biotech sector is for experienced traders only. The healthcare still looks good overall with the XLV down only 0.29% at $92.95.
- The XBI was crushed again down 4% to $80.77 showing that investors are seeking safety. The IJR was down 1.73% to the $80 level.
- Mid-cap biotechs were in a broad sell-off mode with a red screen.
- The IBB lost 2.2% to $107.73 but some large cap dividend stocks held: ABBV, BMY,RHHBY,MRK.
Update 10:45a 11/7: Nimble Trading Brings Big Short Term Gains in Biotech
- ABBV up 10.65% to $88.34 in five days; ALXN up 4.1% to $127; BMY up 4.7% to $53.24.
- Mid-Cap MO is back but selective: IONS LGND LOXO XNCR etc.
- XLV up 2.6% over 5 days, 11.37% YTD on perception that DEMs are pro-healthcare coverage with gridlock on drug pricing caps.
Update 11:30a 11/7: Post-Election Rally with Healthcare Stocks Leading
- NASDAQ up 1.83%.
- IJR feeble rally to $80.8 but up 4.38% YTD and 2.78% over 5 days.
- Expansion of Medicaid in Several States etc. brings XLV up 2.5% to $92.83.
- Large cap, mid-cap biotechs solid green.
- IBB up 1.8% to $110.46 heading toward 50% of re-tracement of recent losses.
- XBI up 1.6% to $84.8 well above 10/24 bottom near $77.
Biotech Bear Market: But Is the Bottom In?
Technicals Rule with Valuations Not Supported by Q3 Earnings
Seasonality Comes into Play in Q4 with Scientific Meetings (ASH) and the Election Over
We saw some nice moves off the bottom last week that shows that investors are ready to jump back in to biotech stocks despite a brutal October meltdown that brought major ETFs down as much as 20% off 2018 highs, a biotech bear market interpretation. Many stocks and indices peaked on August 30. But 2018 has been a volatile year with a huge sell-off in February, lows in May, followed by an ASCO rally through August. We briefly rallied to all-time highs in the sector but now have fallen below previous highs of July 2015.
- The small cap weighted XBI at the $84 level is down 8.6% over 30 days after hitting lows of $77.24 on 10/24. Down 3.73% YTD.
- The large cap weighted IBB at the $108 level is down 8.3% over 30 days after hitting lows of$100.66 on 10/29. Down 1.13% YTD.
- The QQQ NASDAQ-100 ETF at the $169 level is down 7.1% over 30 days after hitting lows of $165.34 on 10/24. Up 5.89% YTD.
- The iShares S&P Small Cap IJR also mirrors the XBI is off the recent bottom and up 3.41% YTD.
- The healthcare sector still looks favorable with the XLV up 6.76% YTD better than the S&P.
Last week we actually had nice rallies for mid and small caps and despite a lackluster day for the market on Friday several well known mid-cap biotech stocks saw nice gains: AMRN EXEL ICPT IMMU LOXO NBIX SRPT XLRN.
However large cap biotechs are still in a funk-most in the red on Friday- with the exception of Alexion (ALXN) but still down 1% YTD. The following large caps are near their 52 week lows: ABBV, BMY, CELG,and GILD. Regeneron (REGN) reports at the opening on November 6. It is safe to say that earnings reports for Q3 could not support peak valuations in 2018 with the exception of Merck (MRK) up 28.55 % YTD and Vertex (VRTX) up 13.33% YTD.
The American Society of Hematology Meeting (ASH) is on December 1-6 so we should see opportunities develop from the data presented at this meeting.
We sold our recent pick Tesaro (TSRO) at $39+ on 10/23 for gains of 20% as the correction unfolded and it is now in the $30+ range. We also trimmed back many of our long biotech positions. The momentum is gone from the market and stock picking is critical. We are suspending all of our portfolio picks for now as this is a trader’s market and new positions need to be assessed on a day-to-day basis. Overall we have an underweight position in what we see is a biotech bear market and risks need to be assessed on a week-to-week level. Small and mid cap stocks have less earning risk and upside from clinical news and M&A. Many market forecasters see slower growth in 2019 and in light of modest growth in Q3 it is best to be cautious.
Biotech can rally as a group but we need the overall market to rally and overcome the concerns of monetary policy and trade where tariffs are already showing a negative economic impact.