Biotech Breakout: Is the Bull Market Back?…Update-1 IBB,BMY

8/5 After the Close… NASDAQ Up 1.06%

The IBB inched up 0.38% to $297.29 while the more volatile XBI did better up 1.07%. Both are still down YTD and trail the QQQ which is up 4.39% YTD. Investors in biotech were not deterred by bad clinical news from Bristol-Myers (BMY) down 16% to $63.28. The Company reported a late stage failure for Opdivo (nivolumab) for previously untreated, advanced, non- small cell lung cancer a huge potential market in the $12B range. Shares for Merck (MRK) that has a competitive drug, Keytruda jumped over 6%. Analysts are digging into the Opdivo data to determine expression levels for the PD-L1 biomarker that was used to target the patient population.

Biotech Stocks Break Out To Six Month Highs

Biotech Is Still Perceived as a Growth and Innovation Play

Both of the major biotech ETFs hit six month highs today. The large cap weighted IBB broke through April 22 and June 2 resistance to hit $297 although still down 11.97% YTD. The more volatile XBI also broke through recent triple tops up 15.36% for the past 30 days although down 8.29% YTD. We put in a buy signal for the biotech sector at the BREXIT bottom on June 29 because we saw no macro correlation with votes in the UK to biopharmaceutical stocks. Moreover the BREXIT sell-off from June 23 was vicious and emotional without industry news. More than anything the technicals told the story then large cap earnings supported biotech stocks over the past two weeks beginning with Biogen (BIIB) on July 21.Both of our technical targets were hit on the IBB, at $270 then $280 helping the current rally. Guests on CNBC talked about a “bio-wreck” a week ago but now there is too much “bio-rally” talk on CNBC so it may be time to be more selective on new buys. Also we are at the one year anniversary of the “bio-bubble” crash in July/August 2015. Nonetheless things look better for the year-end. Risk remains on.

Our focus stocks ABBV,BMY,BLUE are doing well recently and Wednesday Foundation Medicine (FMI) reversed an earlier sell-off on an earnings miss and closed up 4.13% to $24.18. Revenues were up 26% YoY to $28.2M. The stock has a huge short position of 29% but I have no idea why the short is so big because the Company is partnered with Roche (RHHBY) and is a long-term play in pharmacogenomics. Our FMI pick was added on July 5 at a price of $20.40.

M&A came back recently as an underlying model for bullishness. There was a lot of chat for an acquisition of Biogen (BIIB) but the stock has a market cap of around $70B so few companies could afford it. So yes M&A drives valuations  but let’s see a deal first so we will watch how Medivation (MDVN) plays out.

Despite lackluster trading and six days of straight losses for major indices, stocks turned green in late day trading on August 3.  Though there is perceived weakness in the DOW down only 0.53% over five days consider that AAPL is up 7.23% over five days.The NASDAQ is up 1% over the same period helped by biotech. But the really good moves for the past two months were in two sectors: precious metals and biotech. The Market Vectors Gold Miners ETF (GDX) is up 125% YTD and 25.47% for the past month. Silver Wheaton (SLW) is up 133.8% YTD and 17.19% for the past month. The healthcare sector (XLV) is chugging along up 4.37% YTD so not too shabby.

Risk remains on.

Disclosure long: ABBV, BLUE, BMY, FBIOX, FMI, RHHBY

IBB iShares Nasdaq Biotechnology daily Stock Chart

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