Update 5/8/18 Biotechs Rally Above Near Term Support (XBI) at SMA 20
- XBI up 1.96% to $89.80.
- IBB up 1.35% to $103.79; twelve month quadruple bottom is near $100 level.
- Small and mid caps should outperform because of news and M&A potential.
- Large caps: Celgene (CELG) down 20.66% over 12 month lows at $82.80.
- Large caps: Abbvie(ABBV) and Vertex (VRTX) remain leaders but off 52 wk highs.
- Mid cap movers today: CLVS up 8.87%, FMI up 3.69%, LGND up 7.45%,NBIX up 4.41%, ONCE up 8.96%, SGEN up 2.63%, SRPT up 5.62%.
- Two conferences this month should support stocks: BofA/Merrill-Lynch and UBS.
- ASCO June 1-5, Chicago
Biotechs Survive 2018 Bottom But Enthusiasm Is Sketchy
Mid-Caps Should Move with M&A and News-Big Movers Today
Celgene Beats on Earnings and Strong Revlimid and Pomalyst Sales
The overall market rallied today with good strength in NASDAQ up 1.71 % and the QQQ up even better up 1.9% helped by AAPL up 3.97% on a huge buy program this week by Berkshire-Hathaway (BRK-A). Biotech stocks nudged up but short of major indices with the IBB up 1.06% at a quadruple bottom hit at first last August. The XBI tracked the QQQ up 1.7% just above the 200 day moving average (SMA) at $87.37. As we mentioned many times the XBI usually outperforms the IBB on rally days and longer term. The FBT is the best performing ETF in 2018 was up 1.29 % today. We expected a bigger rally today but healthcare has been a laggard with the XLV up only 0.7% today and at the $80 level below the 200 day SMA. The biotech sector was quite volatile in Q1 with highs hit in early February and mid-March followed by severe sell-offs.
Large caps are mixed now that most financial reports are in. Slightly in the green today were ALXN, AMGN, BIIB, CELG, GILD and MRK. Celgene (CELG) reported today and got some buying interest with the stock near its 12 month low. Celgene beat on revenues and profits but issues remain such as the recent regulatory delay on Ozanimod developed for relapsing multiple sclerosis (MS) which will be re-submitted to the FDA in early 2019. Net Product sales were $3,531 M for Q1 a 20% increase for the same period in 2017. Diluted EPS for Q1 was $1.10 compared to $1.15 in 2017. Celgene recently made two acquisitions for over $10M. The stock was up 1.74% today to $86.89.
We are developing a “tracking list” for what we believe is a “sweet spot” of the biopharmaceutical market, stocks that are more likely to move on M&A, deals and clinical milestones. A good example was the acquisition of Avexis (AVXS) by Novartis AG (NVS). We will update this list as we monitor news and stock performance. Our initial screening are mid-caps in the $2B-15B market cap range. For example,some big mid-cap movers up today are: ACAD, ALNY, BLUE, CRSP, LGND, NBIX, SRPT, and TSRO.
- Large caps should underperform mid and small caps over next quarter.
- FBT and XBI should outperform IBB if market holds up above 200 SMA.
- If a mid-cap does not move up today 5/4 chances are it lacks short term support.
- For now the technicals rule the trading.
- M&A is the major driver along with clinical updates.
We are still cautious on the sector with stock picking more important than ever. Here is our previous post on Mid-Caps at the time of a severe sell-off in early April.
Biotech Watch List-Well Known Mid-Caps
Prices as of 5/3/18
|First Trust Arca||FBT||130.4||4.68|
|Data from FinViz|