Rayno BioBeat #6: What Have I Missed After Two Weeks of Travel and Away From Trading Biotech Stocks?…Update 11/3

BioBeat Market Update…Technicals Firming Up 11/3/17 11am

A lot of green screen today so time to nibble but I would prefer to pick stocks rather than play the ETF game. Recent trades we made are: sell XBI at $87, buy PFE at $35 and today buy CELG at $100. No change in our Biopharmaceutical Portfolio with big winners ABBV and BLUE.

Bellwether mid-caps in the green today: ACAD, ALKS, SGEN,VRTX.

Technology sector still the leader.

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BioBeat Market Recap: October Summary as of 11/1/17

  • Earnings and top line growth disappoint and Celgene leads biotech sector down.
  • Technicals and momentum weakens. Rotation continues out of healthcare.
  • No help from current political healthcare agenda.

My last post was on October 16 when we became concerned about technicals, upcoming earnings and harsh political rhetoric returning to the healthcare sector. We felt that risks were rising and that this was not a time to add new positions or modify our portfolio. This view was confirmed as large cap earnings have not supported current valuations. However Abbvie (ABBV), our top large cap pick has delivered with top line and EPS growth.

Here are some key market indices in an ongoing 2017 bull market for healthcare and biotech stocks.

IBB  iShares NASDAQ Biotechnology Index

Down 0.63% today 1.24% for one month, Up 17.6% YTD, trending down.

XBI SPDR S&P Biotech  

Down 1.4% today 4.74% for one month, up 39.3% YTD, trending flat.

XLV Healthcare SPDR

XLV up 0.25% today 0.5% for one month, up 17.9% YTD, trending flat.

Speculation in small caps ebbed slightly: as you can see from the XBI a flattish trend emerged in mid-October. The more speculative IWC  iShares Russell Microcap Index has been weak over the past two weeks hitting a high above $96 in early October and off a tad to the $93 level now. Another new microchip ETF Loncar Cancer Immunotherapy (CNCR) is down 7.2% for the past month.

Large cap biotech earnings were mixed with a focus on guidance and top line growth which were disappointing. We will summarize earnings on a future post. Two stocks for example that took a hit were Gilead Sciences (GILD) and Merck (MRK) but Celgene (CELG) was crushed in October off about 45 points now at $100 after a miss and revised guidance for 2020.

Over the past two weeks large cap technology stocks as represented by the QQQ, up 28.4% YTD or the XLK up 30% YTD have outperformed large cap biotech ETFS like IBB and funds by more than 10%.

Today a big concern is mid caps one of the most pivotal high momentum groups and sweet spot for M&A deals. BMRN is weak while ALNY is up a whopping 223% YTD.  Incyte (INCY) was down 4.7% to around $108 a low YTD and a high above $150 in March, despite good earnings and a beat.  Vertex (VRTX) was down 2.4% but holding the bottom trend line at $142, and up 93%YTD!  The VRTX earnings  beat on October 25.

Summary: We remain cautious so new positions are on hold. Bull market is intact but huge gains YTD in biotech has encouraged  profit taking. Global growth scenario brings sector rotation into International and technology plays.

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