Update-1...FED Goes on Hold with Rate Increase Likely by Year End

  • Three on FOMC dissented wanting a rate hike this round.
  • Market immediately rallied with NASDAQ up 1.03% at close; S&P and Dow also rally.
  • Biotechs like low i rates:IBB up 0.62% to $297, XBI up 1.14% to $68.28 highest level since January but still down 2.74% YTD.
  • Mylan/EpiPen hearings on Capitol Hill bring back more negative focus to drug pricing.
  • Another “green screen” day for life sciences stocks.


Biotech Momentum is Rising: M&A and Regulatory Milestones Spark Biotech Rally

Biotechs stocks continued on their slow but steady upward course headed toward August highs in the case of the IBB and breaking out with the smaller cap weighted XBI. The XBI holds many of the momentum stocks in the news and that are on M&A “hit lists”. Through the fog of the large cap pricing “noise” and macro/FED “flak” there are strong moves among smaller caps that are included in the XBI that has catapulted this ETF to gains of 9.15% over one month and 10.22% over five days. Our model is on track for more biotech gains by year-end. The big moves in many small cap stocks make us feel way too conservative with trades and our portfolio picks. For example over the past month we missed Aerie Pharmaceuticals (AERI) up 101%, Agios Pharmaceuticals (AGIO) up 24.9%, Ariad Pharmaceuticals (ARIA) up 25%, Clovis Oncology (CLVS) up 101.9%, CoLucid Pharmaceuticals (CLCD) up 298%, Sarepta Therapeutics (SRPT) up 117% and even well known mid-cap Seattle Genetics (SGEN) up 20.74%. Today Allergan (AGN) announced the acquisition of Tobira Therapeutics (TBRA) in a $1.7B deal  and the stock was up 720% today!

We did pick bluebird bio, Inc. (BLUE) for the Rayno Portfolio and own Medivation (MDVN) and Puma Biotechnology (PBYI) among the recent MO plays. We also own several small caps that we hope to share the names if they meet our trading criteria.

Our portfolio strategy for 2016 has been to pick large cap growth stocks with dividends such as ABBV, GILD, RHHBY and selected speculative plays in emerging technology areas such as pharmaco-genomics Foundation Medicine (FMI) and gene therapy bluebird bio (BLUE). We added IBB near the Brexit bottom in July at $250 for sector overweighting. IBB resistance is $300 and support is at $280. We also added Amgen (AMGN) as a value/dividend play in the $172 range.

The XBI support has moved up to $60 well above the Brexit bottom of $50 in late June.

Stay with core positions in large caps and ETFs.Traders appear to have a number of upside possibilities as biotech stocks are hot.


XBI SPDR S&P Biotech ETF daily Stock Chart

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