Focus on Small Cap Biotechs Now For A Q4 Rally

Focus on Small Cap Biotechs with Our Momentum Model

• Small caps made nice gains last week with the Russell 2000 (IWM) up over 2%The IBB is now positive YTD up 4.89%. But today most biotech stocks are weak.3p EDT. Also note the 10 year yield rose to 4.275%.
• Technology stocks still dominate the market with the XLK up 13% YTD. But watch NVDA earnings on Thursday.
• Focus on our small cap picks led by XBI and IBB. Milestone and news plays away from Pricing and Tariff risk.

The market has been gradually moving to new highs as sector rotation brings  on new investors. The AI technology trade in 2025 is resilient with the MAGS up 8.37% YTD, up 34% over one year with just a few concerns bringing “bubble tawk”.  But investors are slowly allocating more bets in this amazing bull market toward industrial stocks up 15.6% YTD and a very weak healthcare sector flat YTD even after huge gains recently.  Here is a measure of current sector performance from the  SPDR ETFs.

Now some market strategists say that for any next leg up in the market we will need  the broadening rally to include small and mid caps which for biotech that would mean new highs or better momentum by year end for two ETFs: IBB and XBI as well as some the more popular Life Science Mutual Funds which are FBIOX $20.64 up 9.21% YTD, JNGLX  $69.58 up 2.49% YTD, and PRHSX $79.47 flat YTD. So in our analysis we always begin with technical analysis which should indicate a change in trend and sentiment which has been negative because of  Administration Policy issues like cutbacks at NIH and University R&D or FDA support of product approvals or broader issues like Pricing controls and general prioritization of Healthcare in the Budget vs Defense or Homeland Security. Here is a good recap of some the issues facing the biotech industry, less dire as new money goes into start-ups.   But of course the most important success measure among many small caps are new products and M&A inclluding licensing deals. As value gets created in a company it gets reflected in a deal, more funding and the sector gets more robust.

When risk is ON in the market like last week due to a likelihood of rate cuts you got a huge rally in biotech:

• ARKG at $25.24 up 6.45% YTD down 3.11% 1 year.
• IBB at $139,84 up 5.77% YTD down 4.51% 1 year.
• XBI at $90.92, up 0.92% YTD, down 9.21% I year.
• IHI at $62.87 up 7.54% YTD, up 8.51%  1 year.

A basic assumption our SMID model is that our Large cap Biopharma stock (see our picks)  will hold up with no major hits by BIG GOV due to policy actions.Today that issue crept into the market again as Trump brings up drug pricing equity with Europe and the result is many large caps are down over 2%: And of course from the positive side we would hope that the market comes to recognize that the US wants to retain its  leadership position in Pharmaceutical Innovation , and not lose out to China which is stepping up clinical development and big gov support.

Hence our Trading Model of about 25 Small and MID-Caps should result in profitable trades creating value and indicating overall health of biotech sector which hasn’t hit n highs since 2022 last week with all the volatility last week we bought three new (speculative) stocks : CAI, CBIO and CGTX.

• Caris Life Sciences (CAI) now at $39.62 up over 46% YTD. An AI directed molecular profiling Company utilizing blood and tissue services for oncology.
• Crescent Biopharma (CBIO) now $14.79 down 40% YTD.Devlops therapies for cancer  patients using ADC (antibody drug conjugates).
• Cognition Therapeutics (CGTX) now $3.21 up 359% YTD . Is a clinical stage biopharmaceutical Company focused on neurodegenerative diseases  with a Phase 2 lead small molecule for Alzheimer’s Disease and other synucleinopaties.

Here are some successful trades in this list despite the volatility and lackluster sector performance lately:

•  Stocks trades we still hold that are in the money: ADPT, CYRX, COGT,  CRMD,EYPT, EXEL, GH, PTGX, RNA, RYTM, SUPN,
• Stocks we have held over about 3 mos that are still in the red or losses: DNLI, PACB, QDEL ,XNCR.
• We dont disclose stocks we have sold but we do try to update the list periodically, and have removed stocks from the List.

Raygent Focus Stocks- A Trading List