Update-1 1/9/20 “Sigh of Relief” rally for second day -Don’t Fight the FED

Dont confuse a momentum rally with fundamental analysis as we are at new highs with market PEs>18.

  • Large cap biiopharmas are at new highs
  • Mid-cap 2%+ winners today: ACAD, ALNY, BMRN, GWPH, MRNA, QURE, NBIX.
  • XBI momentum eases at $95-96 range.

Geopolitical Uncertainty Rising Could Dampen Sentiment

A Litle Biotech Bounce Off the 2020 Bottom Today with NASDAQ up 0.58%

The strong end of year biotech rally was stalled through lackluster holiday trading now with geopolitical uncertainty on the news front. Nonetheless little has changed economically and the FED is on hold with cheap money. The tape is active today with many nice movers and with the J.P.Morgan Healthcare Conference next week, expect deal news and earnings updates. Overall the market was calm despite nervous  post-IRAN news expectations especially with IRAQ.

Our bellwether momentum indicator the SPDR S&P Biotech (XBI) took a ~2% hit over the last 5 trading days after it lost momentum at the $98 level, the high for 2020. The XBI was up 0.87 % today. One concern for the near term for smaller cap biotech is weakness in the Russell 2000 (IWM) flat today at $165, a “risk-on” but less volatile trade that correlates with the XBI. But with potential news ahead in a seasonally positive “January effect” small cap trades can do well like one of our picks Teledoc (TDOC) up 4.85% today.  The QQQ is up 1.2% over 5 days and continued to be the best ETF trade in NASDAQ.

The large cap biopharmaceutical stocks should be safer under less bullish sentiment because of more predictable earnings growth, dividends and ability to grow through M&A. Recently the WSJ reported that companies were raising prices in 2020 and increases would average 5.8% for 2020.  But Congress does not appear ready to take action for drug pricing reform. We favor specific large caps rather that the IBB and currently hold: ABBV, BMY, GILD, GSK MRK and RHBBY.The IBB is up 0.64 % today and about 12% over one year with most of the gains coming in a Q4 2019 surge . Note Vertex (VRTX), a favorite pick among 20 analysts soared 2.78% to $224 near its all time high.

Watch for rotation into trending sectors such as  materials and energy. Healthcare stocks may not lead as they did in Q4 2019 , but their defensive nature should offer less volatility. We are still overweight a diversified healthcare portfolio including large cap biopharma. medtech and life science tools stocks, but are wary of adding new positions.

Biotech stocks rallied a bit today and were up from early losses. Notable 2% + winners among MID-cap stocks we track are: ACAD AGIO BLUE EDIT EXEL NKTR  RARE RGNX VRTX XNCR.

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