Update-2 After close: Market Collapses After FED Meeting-Bear Market
WE all knew that the biotech sector likes looser monetary policy but this sell-off is ridiculous. The IBB is now at May 2017 levels! XBI breaks through 2018 technicals down 3.33% on downside to $71.20, now at June 2017 lows.
Update-1 1 pm 12/19/18
Green Day Today Before FED after Biotechs Hit Lows Yesterday
Biotech stocks hit new 2018 lows yesterday with the IBB down 9.3% YTD and the XBI down 15% YTD now at $74. See our post of Nov 4th on Biotech Bear Market.
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Bull Case for Biotech Still Clouded by Macro- Especially China Trade Deal
Technicals Remain Weak: IWM, IJR, XBI with Choppy Bottoming Process
Large Caps Can Offer Value Assuming Healthcare Remains Leader
In our previous posts we felt that momentum for biotech stocks was mired in the mud of macro events.Trade fears and apparent sensitivity to FED rate increases have “trumped” any good news on clinical milestones and deals. Despite the positive seasonality of December bolstered by scientific meetings (ASH), healthcare conferences and deal news (TSRO), the upside gets derailed by lack of clarity with the China Trade deal. Nonetheless we see an opportunity for traders who follow the sector as many stocks are near the lower end of the 52 week range. But the sharp volatility can be unnerving.
Here are some key technical indicators to track the biotech sector:
Smaller caps are approaching a bear market with (XBI) in the $78 range with a failed rally up at $85 and a 2018 bottom at $75. Broader market small cap ETFs IWM and IJR look worse as they are at 2018 lows as concerns mount for slower growth and tighter financial conditions mount.
Large caps can still do well as they approach a range attractive for value investors but the IBB at $103 has hit two double tops in 2018 at 120 and 110 ranges and is now down 5% YTD. The healthcare sector overall (XLV) at $91.61 is still up 9.5% YTD. Amgen (AMGN) one of our recent picks is hanging in at the $195 range after hitting $208 this month! Amgen is still up over 9% YTD. Look for BMY,MRK and RHHBY to hold current prices.
Mid-Caps the former super-stars of ASCO and the 2018 summer bull market are languishing near their 52 week lows. Among the weakest we track are : AGIO,ALNY,ANAB,BLUE,FOLD,INCY,LGND,NKTR,RARE-all in the red today. Some mid-caps holding up beyond mid-point of their 52 week range are: ARNA, ICPT,IONS,XNCR. Tesaro (TSRO) was our top pick was up over 120% because of the GlaxoSmithKline (GSK) acquisition.
Caution Note: Some recent trades that were positive have moved down today: e.g.CELG and small caps. AMGN and BMY are holding so bull case for biotech is large caps,
A recent high profile, mega IPO Moderna, Inc. (MRNA) is holding close to $19 but below its offering price of $23 and $7.5B valuation. This will be a Company to watch with over $600M raised to fund its deep pipeline for hard to treat diseases in cancer, infectious diseases and cardiovascular areas. The early stage pipeline is diverse utilizing core mRNA core technology for prophylactic and cancer vaccines, immuno-oncology and regenerative therapeutics. For a speculative long term position, we will add small positions in MRNA on technicals anticipating clinical milestone news. The Company has partnerships with AstraZeneca (AZ) and Merck (MRK) .
Some positives to consider in this treacherous whipsaw of a “gummi bear” market is that stocks do move up on the whiff of progress on a trade deal, bearish sentiment has reached a five year low at highest 48.9% (a bottoming indicator) and biotech stocks are near 2018 lows not frothy at all.
Disclosure: Long AMGN,BMY,CELG,MRNA,MRK,RHHBY,XBI other small caps.