6/1/17 Update at close… Biotechs Bounce off Bottom of 3 Month Trading Range
- IBB up 1.8% back above $290 after hitting 200 SMA bottom.
- XBI up 2.7% to $69.54 at SMA 50. XBI 2017 top is $72.
- XLV a safer play up over 1% to $76.91; above March highs and near 12 mo. highs up 11.58% YTD.
- Broad rally today with all major market indices to new highs.
The good news is the strength of the diversified healthcare sector (XLV) beating the S&P up only 8.53% YTD. ASCO is coming up next week so expect good news to support the rally.
Biotechs Sink with a Short Term Trading Mentality
Sector Shift in 2017-Technology is In Financials are Out
Stock Pickers Beat ETFs But the XBI is Still Up 12.8% YTD
Biotech stocks continued to lose momentum with a three-day losing streak and the XBI down 7.4% for the past month.The IBB opened flat at $284 today. Recent strength in tech stocks outperformed biotech. The XLK Technology Select SPDR Fund is up 4.12% over the past month and the PowerShares QQQ Trust is up 3.93% winnowing many large cap biotech holdings that were dominant leaving only Amgen(AMGN), Celgene (CELG) and Gilead Sciences(GILD). The Top holdings of the QQQ are well-known momentum leaders: AAPL, MSFT, AMZN, and GOOGL (A&C). Despite spurts of strength and a good appetite for trading small caps the sector looks peaked out. The IBB up a feeble 7.13% YTD needs to hold the bearish $280 level, the February low.
Here are some ETF trends to watch in this bifurcated market:
- Large cap tech (XLK) and semiconductors (SMH) are the big winners in 2017. The semiconductor ETF is up 19.28% YTD. Usually tech and biotech are tandem performers.
- Financials have faded (XLF) up only 0.86% YTD with the slowing Trump tax reform agenda.The XLF peaked on March 1.
- Small caps are lagging due to lack of policy progress in Washington. The IWM Russell 2000 Index is flat YTD.
- Energy stocks have collapsed.The XLE is down 12.75% YTD and the XOP is down 20.38% YTD.
- Healthcare (XLV) has held, up 10.37% YTD because of underlying yield and diversification beyond drug stocks such as services and equipment.
- Bonds are a conundrum with yields headed down to 2.21 % the mid-April lows, despite many blue chip stocks with yields above 3%.
This market has been fueled by momentum traders in hot sectors that are immune to geopolitics and the “Trumponomic” agenda. Biotech breakthroughs still make news and drive stock momentum but the overall sector cannot hold gains. Stock pickers have been rewarded with companies on the M&A and deal-making news or with compelling top line growth. But we still have the spectre of drug pricing legislation with a broad agenda.
Here is the YTD performance as of 5/30 of selected stocks in our Rayno portfolio:
Abbvie (ABBV) up 5.43%, bluebird bio (BLUE) up 26.5%, Bristol MyersS (BMY) down 7.72%, Gilead Sciences (GILD) down 9.94%, Foundation Medicine (FMI) up 110.45%, Hologic (HOLX) up 7.45%. and Roche Holding (RHHBY) up 19.68%. We favor the equal weighted S&P Biotechnology Select Industry Index (XBI) up 13% YTD over the IBB.