Update-1 “Growthier” market move sparked by housing data-new home sales jump 16.6%
A broad rally today surprised many traders. Technology was a leader up 2% followed by healthcare up 1.49%. US new single family home sales hit an 8 year high a sign of growing prospects for the economy. The green screen prevailed in biotech with many well known stocks up over 2%. The IBB was up 2.26% and the XBI was up 1.86%. Most large and mid-caps were big winners. Gilead Sciences (GILD) finally rebounded 3.47% from 52 week lows to $86.22. Biogen (BIIB) was also up 3%. The bellwether QQQ was also up 2%.
Nonetheless skeptics say “fade” this rally because of macro concerns, an impending election and little top line growth. But the incessant FED talk of a rate increase may no longer be a concern if the view becomes that the economy is better than expected.
For biotech we need some follow-up this week because of failed rallies in April.
M&A Can Ignite Interest in Biotech Sector
Biotech stocks are languishing in a risk-off situation tracking the general market but trading opportunities abound and investors show continuing interest in the sector. We should assume with no further negative news that the dark clouds over the healthcare sector related to pricing concerns will clear and the negativity is already reflected in current market prices. Core positions in dividend paying large caps (ABBV, BMY, GILD, RHHBY) can be maintained with ample cash on the sidelines. Look for more M&A to boost the sector in 2016 along with important clinical breakthroughs. Here are some positive trends to consider including two major M&A deals:
- Both the IBB and XBI have held multiple bottoms for the year the most recent being May 12 although they are still down over 21% YTD. Moreover rallies are being sold. We need to build on technicals this week with anticipation of positive ASCO data.
- The IBB has been weak over the past month and the QQQ flat and down 5% YTD. Without upside action in the NASDAQ-100 don’t expect biotech rallies. And many analysts and pundits are bearish on tech stocks some calling it a bubble.
- Mid-Caps ($5-15B+ market cap) are showing good gains lately. These are the companies with strong product pipelines that could be the next leaders providing top line growth: Alnylam (ALNY) up 3.93% over five days; Incyte Pharmaceuticals (INCY) off recent lows and up 5.4% month to date; Medivation (MDVN) up 17% month to date supported by a hostile takeover bid from Sanofi (SNY); Seattle Genetics (SGEN) up 12.63% over five days.
- Anacor (ANAC) was bought by Pfizer (PFE) for $5.2B; stock soared 50%.
- The Healthcare Select SPDR (XLV) has stabilized although still down 3.64% YTD. This broad-based ETF made two solid intermediate bottoms on 2/11 and 3/17.
- Many small caps are on the move: GlycoMimetics (GLYC) is up 28% on potential clinical updates for its AML drug. GlycoMimetics has 2 clinical stage drugs in its glycobiology portfolio. Intrexon (XON) is up 14.8% over 5 days. Intrexon has a broad technology platform in synthetic biology. The XBI tracks smaller cap action.
Technicals are still weak but trading opportunities are getting better. Remain market weight to QQQ. It might be time to add more small cap speculative trades and we will present trading ideas from time to time. XBI is the aggressive trading vehicle and looking to rally.