Updates 5/30 Pre-ASCO Rally: XBI regains momentum to $94 level. IBB breaks through SMA 200 level to $108+. Many mid-caps from our watch list soaring-CRSP*, FMI, FOLD, LGND, LOXO, NKTR, SGEN, SRPT etc.
*Note CRSP got whacked after hours down 13 points! The FDA has put the clinical trial for sickle cell treatment on hold. Other gene editing stocks were also down after hours today: EDIT, NTLA.
Our top large cap pick ABBV was up 3.56% to $103. Our top mid cap pick FMI was up 6.33% to $99!
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Geopolitical Crisis Redux in Europe Sparks Sell-Off in Financial Stocks
- Geopolitical Risk Returns with Turmoil in Italy.
- Risk-off Trade Favors US Treasuries-10 Yr. Rate Drops Below 2.8% Level.
- Biotech Momentum Stalls Hurt by Macro Concerns
Financials (XLF) down 3.34% with a horrible 2018 chart, industrials (XLI) down 1.6%, and healthcare (XLV) down 1.02% were the hardest hit sectors today amidst geopolitical turmoil. NASDAQ recovered in the final hours down only 0.5%. Political chaos in Italy raised concerns about a potential departure from the Euro and a risk off mentality driving traders to treasuries boosting prices and causing a drop in the 10 year US Treasury yield. This trade created a sell-off in financials that surprised many bulls who expected higher interest rates that would support bank stocks. Piled on top of this is the potential impact of earnings for global banks as a result of weakness in the European economy and Brexit. Global banks also hold big positions in sovereign debt for European countries. Policy risk in the US remains high. All of this will take time to resolve but the fear now may be overblown.
Biotech momentum eased despite being helped by seasonal factors such as ASCO and the BIO International Convention next week. Our favored trade the (XBI) was down 0.57% but still up 9% YTD the (IBB) a tad better down 0.45% but flat YTD. Despite the volatility today there was very little technical damage to biotech stocks. But overall the biotech sector is in a slightly bullish holding pattern over 12 months with two double tops, unable to break through to new highs. The QQQ showed resilience down only 0.44% today and is up 8.48% YTD.
Mid-Cap stocks on our watch list were weak and volatile with a few ~1% winners: IONS,LOXO,SRPT. Several show good 2018 momentum and are near 52 week highs: AGIO, ARNA, CRSP, FMI, FOLD, GWPH, LGND, NBIX and NVCR.
Large caps were weak but two stocks that were among the worse performers for 2017-18 and that we recommended for long term investors showed green: Biogen (BIIB) up 0.31%, down 9.9% YTD and Regeneron (REGN) up 0.94%, down 21% YTD. Both BIIB and REGN are off their 2018 lows. Celgene (CELG) remains one of the worst stocks in our large cap universe despite a low PE of 7.6 and the potential of 19% top line growth, but at a price near $78 the technicals are not looking good yet.
Some good info on biopharma at: Pullan’s Pieces. Topics include Patent Expitration, SADCs and IDOs.
Summary
Mid and small cap biotech stocks offer good trading opportunities. Geopolitical risk has curbed sector gains for now despite positive news and seasonality. Still we have to deal with the hangover of government proposals to temper high drug prices.
