Weekly Update

Biotech About to Turn It Around?

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Published March 10, 2017


In 2015, after more than quadrupling in price in a massive bullish run, biotech stocks hit a wall. Presumably undone by some comments from then-Senator Hillary Clinton that drug prices were too high and needed to be addressed, biotech stocks began wilting. Mrs. Clinton’s comments aside, the stocks had run to a point where they were just way overvalued and due for a rest.

Has almost two years of rest been enough? Chart 1 below shows that biotech stocks as a group are poised for a turnaround and now wrestle with important chart resistance at 300. Chart 2, of another major biotech ETF shows even a touch more momentum and uptrend.

Chart 1:  IBB – Biotech ETFs fixin’ to get ready to launch an uptrend?

IBB - Nasdaq Biotechnology ETF

Chart 2:  XBI – Biotech ETF

XBI - Biotech ETF

Perhaps a little irony here is that President Trump has also made comments about squeezing drug prices. It’s just that such comments have a different impact when a group is cheap versus when it’s expensive and people are looking for reasons to bail out. If biotech stocks can break upward here with some momentum, our favored Nasdaq 100 (QQQ) index will continue its 2017 outperformance of the broad market. Go biotech!!

Market Update

A good test of resilience for stocks this week as oil prices encountered notable pressure and an interest rate hike at the Federal Reserve’s March 15th meeting became a foregone conclusion. Stocks opened the week with modest losses of -0.3% on no real news. And again on Tuesday with another -0.3% slip. Wednesday brought the headlines with oil prices getting hit -5% on another substantial build in oil inventories and interest rates popping higher on a large increase in jobs from the monthly ADP report (a precursor to the government’s report on Friday). Nevertheless, stocks closed down only -0.2%. Oil fell another -2% early on Thursday but recovered in the afternoon while stocks maintained a flat tone. Interest rates continued climbing with the 10-year U.S. Treasury bond yielding 2.6%; its first visit to that level since December. Friday’s government jobs report confirmed the ADP report earlier in the week with a strong showing. Markets generally liked the strong jobs report though stocks gave up early gains before recouping them in the afternoon to close +0.3%. Oil prices fell again but were unable to really impact stocks in Friday’s trade.

The S&P 500 held to a -0.31% move on the week while the Nasdaq 100 (QQQ) rose +0.28%. The small-cap Russell 2000 (IWM) continued to struggle on a relative basis losing -1.94% this week.

Warm wishes and until next week.