Expect Modest Rally in Biotechs Through Q1 Earnings

As of mid-day trading 1P EDT with flat NASDAQ

Update at close: biotechs held onto gains despite a mild sell-off for the Dow and S&P with NASDAQ flat. Biogen (BIIB) gained a tad more up 5.16%. From here we’d like to see more rotation into healthcare and biotech as a countertrend rally to the S&P. This sector trend should continue tomorrow as both Alphabet, Inc. (GOOGL) and Microsoft (MSFT) missed estimates and are selling off down ~5% after hours. The futures look stable for now.


Biogen (BIIB) rallied 4% with an earnings beat despite weaker revenues at $2.7B with some headwinds from currency fluctuations. Worldwide interferon sales are down. GAAP diluted EPS up 27% over previous 2015 Q1.Hemophilia revenues grew 5-6%. Phase 3 aducanumab clinical trials for Alzheimer’s Disease will begin in 2016.

Investors and traders have ignored biotech lately distracted by big moves in other sectors. Materials and energy have been on a tear over the past month as the dollar has weakened, China concerns have waned and bellwether oil has recovered to the $40 level. Moreover leading economic indicators point toward slow ~2% growth lessening the risk for a recession in 2016 creating an appetite for cyclical stocks.Here is the sector scoreboard over the past month:

  • Materials up 8.76%
  • Energy up 7.76%
  • Healthcare up 6.7%
  • Financials up 2.7%
  • Technology up 1.97%

A weak dollar, future political concerns about trade and charges of currency manipulation have driven investors to precious metals and mining shares. Gold is up only $3.80 for on month but silver sometimes a harbinger of industrial strength is up 7.82% to 417.20. Gold should hold these levels if interest rates do not rise. Here is performance over one month:

  • GDX Market vectors gold ETF is up 13.76%
  • Junior Gold Miners GDXJ is up 22%.
  • iShares Silver Trust SLV is up 8%.

Biotech shares have beat the market and the QQQ up 2.48% over one month but are still recovering from the January free fall with lows in mid-February. The biotech scoreboard  over one month :

  • IBB up 11% but still down 15.76% YTD
  • XBI up 12% but down 18.86% YTD.
  • XLV up 6.43% and flat YTD.

Our portfolio focus for 2016 is large caps and they are doing well. Gilead Sciences (GILD) broke through $100 and is up 9% for the month and 13.85% YTD. BLUE an extremely volatile stock is up 5.6% today on reported clinical data. Most large caps biopharmas were up today tracking Biogen earnings. Green screen today with few big movers INCY down 2.88% , AGIO up 9.94%.

Update today at the close. “Risk is On” but short covering has been a factor.

Disclosure: long ABBV, BLUE, BMY, FBIOX, GILD, XBI.

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