After 18 Months Of Pain, Biotech Stocks Are Back In Action

By Greg Guenthner Feb 28, 2017, 4:33 PM 

stock chart

A historic market streak has officially worn out its welcome…

The Dow managed to spit out another green close to begin the trading week. That brings its streak of record-high days to 12, a feat not seen since 1987.

Frankly, I’m sick of marking time alongside the Dow as it crawls higher. In an effort to preserve my sanity (and yours), today’s the last time I’ll mention it for a while.

The financial press has also moved on from reporting on new record highs. The gaudy headlines now belong to Trump’s budget proposal and gossip about a potential March rate hike.

Yawn. That’s about as boring as watching the Dow creep higher by an eight of a percent.

Thankfully, there’s a much more exciting melt-up taking place this week in biotech stocks.

Out of everything that’s happening in the market this week, the biotech breakout is the most interesting development by far. One of our boldest 2017 predictions is beginning to come true: After 18 months of pain, biotechs are back in action!

The outperformance we’re seeing right now is telling. Not only have biotech stocks remained vulnerable to political attack related to the drug pricing scandals that made headlines last year – they’ve also had to dig out of a nasty bear market.

Last year was a rough one for biotech and health care. Even after bouncing off its winter lows, the group underperformed every other major sector on the market in 2016. In January, we noted that the Health Care Select Sector SPDR had just registered its first annual loss since 2008.

That’s where the first signs of a major bounce materialized.

Health care and biotech stocks were the strongest names on the market during the first week of January. But they weren’t ready for prime time just yet. After a few more weeks of consolidation, we finally have the breakout we’ve been waiting for…

Biotech Stocks

The iShares Nasdaq Biotechnology ETF (NASDAQ:IBB) gained nearly 3% yesterday and broke to new 2017 highs. Meanwhile, smaller biotechs launched even higher. The SPDR S&P Biotech ETF (NYSE:XBI) jumped almost 5% on Monday.

Make no mistake – this biotech rally is as broad as it is powerful. While the rest of the stocks on the market were stuck on pause yesterday, 130 biotechs gained at least 5% on the day. Twenty-four of these gained more than 10%. Even the down-and-out biotechs locked in nasty downtrends enjoyed a reprieve.

With plenty of catalysts on the horizon capable of sending the sector to new highs, we’re ready to book some serious gains on these red-hot stocks. Your SPDR S&P Biotech ETF (NYSE:XBI) play is already showing gains of more than 8%. And your Incyte Corp. (NASDAQ:INCY) position is up nearly 10% in less than two weeks.

We can expect these two positions to extend their gains in the days and weeks ahead. It’s time for this biotech rally to take center stage…

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