5/3 Testing February bottom and 200 MA of ~$100 on IBB and ~$85 on XBI. Red screen day. 2PM EDT Dow near flat line. Need to look for major gap up.
- Another potential negative on the horizon: “Bold Action on Drug Pricing” by Sect’y HHS.
5/2 Biotech Stocks Are About To Test 2018 Lows: It is all in the Technicals.
Up until last week the biotech sector outperformed the market in 2018. But as more earnings get reported the large caps are selling off with the exception of Abbvie (ABBV)up 5% off Monday’s bottom. The IBB at $102.68 is approaching 2018 lows near $100 and the XBI at $87.45 needs to find support at $84. The FBT is up 2.3% YTD.
- Recent financial reporting of large caps were disappointing with sell-offs in BMY GILD and REGN. Celgene (CELG) reports Friday.
- Mid-caps have done better but can be very volatile like Esperion (ESPR) down 35% today on clinical results because of safety concerns wiping out gains for the year.
- Seattle Genetics (SGEN) was up 3.64% today on positive top line YoY 29% revenue growth and improved guidance for 2018.
- M&A is still the driver because buying revenue and technology is the way to growth. Thus small and mid-caps are favored.
- Overall performance is sketchy despite many winners particularly in a difficult macro environment with rising rates.
Biotechs Bounce Off Near Term Support
Mega-Cap Drug Stocks Take a Hit: MRK,PFE
Pricing Pressure and More Competition Expected in Immuno-Oncology?
After several lackluster trading days biotech stocks rallied off support from the April bottom despite big sell-offs from Merck (MRK) down 1.5% and Pfizer (PFE) down 3.3%. Investors were looking for more revenue growth from both companies. The biotech sector hit lows in early April then sold off again yesterday in what looked like another downturn before recovering in late trading today. The bellwether (XBI) held recent support today at $87.71 above April lows at the $84 level; technicals look mixed with neutral RSI and weak MACD. The IBB was flat today but down 4.8% YTD reflecting the weakness in large caps. The FBT leads the ETF parade up 4.5% YTD and up 5.5% over one month despite a very weak April.
Gilead Sciences (GILD) missed on top and bottom lines and the stock took a hit of about 5% after hours. Product line sales for HCV and HIV are $5.09B vs forecasts of about $5.4B. EPS was $1.17 per diluted share or $1.5B vs $2.05 in 2017. Cash position was a very strong $32.1B. Prior to today’s earnings report the stock was down 2.09% YTD.
If you look around the sector today we had a nice snap-back rally. Abbvie (ABBV) was up 5% to $102.07 today well off the $91.40 level from last week’s financial report. Many mid-caps were strong: ARRY BLUE BMRN BPMC ESPR NBIX SGEN and the overall biotech tape looked good.
Celgene (CELG) remains a laggard near its recent bottom at $87.93 with a big outflow yesterday but with hope for good financial reports this Friday. Amgen (AMGN) was weak today down 2.98% with some selling after weak top line growth was forecasted last week.
Based on today’s action the market wants to see growth through M&A and new themes to supplement immuno-oncology. This would favor mid to small caps because top line revenue growth off mega-caps may be considered at risk given pricing concerns. However given recent weakness in biotech we need a more time and another week or so of earnings reports before adding positions. Healthcare (XLV) is also weak.Traders should consider adding XBI but if the price closes below $85 the 2018 uptrend would be broken.
Disclosure: Long ABBV, ARRY, CELG, FBIOX, GILD, KPTI, MRK