2/23 After Close— Energy Rout Burns Biotech Stocks and NASDAQ

The red screen dominated except few winners like ZIOPHARM Oncology (ZIOP) up 13.95% on a publication regarding gene editing. Another gene editing stock and recent IPO Editas Medicine (EDIT) was up 4.63% to $22.62. Large cap biopharma joined the sell-off and Fidelity Select Biotechnology Portfolio (FBIOX) took an unusually big hit off 3.63%

IBB down 2.35%  We need to hold the 250-260 recovery range

NASDAQ down 1.47%

XBI down 4.78%!!

The abrupt energy reversal from yesterday rolled over to equities with the perception that if oil prices cannot hold then there must be a global slowdown with recession potential. J.P.Morgan shares dropped over 4% on news that its projected energy loan losses may worsen if oil continues to slump. The Saudis ruled out crude production cuts saying let market forces be allowed to work. The risk-off posture driven by oil is suddenly pervasive and has scared away biotech investors.

As of 1 am EST futures were down: WTI down 2.2% at $31.16, NASDAQ down .22% at 4150 and gold up 0.49% at 1228.60.


Broad Market Rally With Biotech Lagging

Biotech stocks showed some strength today with a lively tape but lagged the broader market. The S&P 500 (SPY) continued a rally that began on 2/11 and is now up 2.26% over one month, 4.39% over five days, erasing losses for February. Many of the financial and market pundits are very skeptical of this rally saying it is going nowhere but it already has gone somewhere, escaping the grim technical levels hit on 2/11 and correction territory. The bears believe it is a short covering rally. The S&P has pretty much traded with crude and energy stocks, a correlation that is very pronounced over the past month. A Barron’s cover article, “This Storm Will Pass”, offered support to the bulls with the subhead, “With no recession in sight, stocks could rebound to earlier highs”.

In today’s trading the healthcare sector lagged all other sectors with leaders: basic materials up 2.99%, energy up 2.77% and cyclical consumer goods up 1.76%. The XLV healthcare ETF was up 1.4%. The QQQ down 7.67% YTD is outperforming the IBB and has some large cap biotech holdings.

  • The large cap dominant ETF the IBB gained only 0.68% at $263 just 15 points above the 2/11 2016 bottom and still down 22% YTD. Some large cap biopharma stocks outperformed: Gilead Sciences (GILD) up 1.9%, Celgene (CELG) up 1.92% and Abbvie (ABBV) up 1.84%. Amgen (AMGN) was down 1% on late stage clinical trial news for its osteoporosis drug but apparently not as good as Radius Health (RDUS) data which was up 25%.
  • The smaller cap XBI did better up 1.08% with a lot of big movers despite choppy action: ANAC up 2.72%, BLUE up 2.13%, and NLNK up 2.73%. The XBI is down 27.8% YTD.
  • We are looking for traction among the mid-cap biopharma stocks which were the momentum leaders before the August 2015 sell-off: Alnylam Pharmaceticals (ALNY), Incyte Pharmaceuticals (INCY) and Vertex pharmaceuticals (VRTX). Incyte (INCY) was $130 at the summer peak and is trying to form a base near $70 now.

Update on the sector tomorrow. We are in the process of rebalancing the Rayno Life Science Portfolios with some new picks.

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