Risk Off Mentality Hits Small Caps and SMID Biotechs Hard

• The healthcare XLV is up 8.51% YTD, up 1.76% 1 year while the small cap weighted XBI is down 3.05% YTD and down 11.63% over one year.
• Investors are seeking the safety of large cap balance sheets plus dividends.
• SMID cap life science stocks have extreme volatility creating windows of 3-5 day shorts and longs.

Small caps took another step down this past week as geopolitical events dampened sentiment. Large cap biiopharma stocks continued to run (data as of 2/20) as investors sought domestic plays seemingly out of the whipsaw of tariff actions. But is any stock sector really safe from the barrage of Trump Administration tariff actions with long term policy implications. We need to get through the budget and government shutdown threats for some near term clarity. Last week was we saw a continuation of recents trends with momentum stocks losing steam and defensive sectors gaining, almost a reverse from last year.  Looking at SPDR ETFs we have the following performance: Healthcare up 8.35% YTD and Technology down 2.95% YTD. Also doing really well YTD are Financials up 8.04 % YTD though a tad weak lately,  Materials up 5.56% YTD, and Energy a comeback up 6.27% YTD. In a major reversal from 2024 Consumer Discretionary ETFs were down 7.02% for the month and 3.73% YTD  reflecting some overall risk to the economy. Momentum stocks took a hit lately  with the USA Momentum Factor ETF (MTUM) down more than 10% of last months highs of about $230 to Fridays close of $204.35. with the RSI down near a low of $32.49.  If you followed our MOMENTUM strategy for SMID biotechs you could expect a “risk-off’ strategy because many of these stocks trade on momentum and this model can be tracked by popular biotech ETFs: ARKG down 14.76% MTD and 1.6% YTD with XBI down 4.32% MTD and 3.02 % YTD.

(Click on image to enlarge)

Note that other small cap indices are weak YTD especially over past week: iShares Russell 2000 (IWM) down 9.93 % MTD, 6.67% YTD. And iShares Core  S&P Small Cap (IJR) down 9.26% MTD and 6.23% YTD. Usually the IJR has less downside volatility than the IWM but not this year.

Roundhill Magnificent 7 ETF (MAGS) is down 15.35% YTD but still up 22% over one year.

SMID Cap Life Science Trading List

You should refer to previous posts upon this list as volatility is very high (we did not update performance) on chart). Here are some of the winners over a one year period and YTD:  ADPT, 113%, YTD 22.6%  EXEL up 74.65%, up 15.6% YTD, CPRX up 32%, up 5.22% YTD, CRMD up 195.86%, 33.2% YTD, GH up 985, 26% YTD, LGND up 58.45%,  up 7.17% YTD, VCEL up 10.4%, down 9.74% YTD, VCYT up 41%, down 19.4% YTD. But many of our top picks took big hist over the past month: SUPN, VCYT, XBI.

• We added two new trades last week: EyePoint Pharmaceuticals (EYPT) at $7.13 and Solid Biosciences (SLD) at $5.42.
• One of our trades in 2024 and the volatility winner is Tempus AI (TEM) now at $49 with a. one year range of $25-$89!.
• One of our best trades and long term holds got an upgrade over the past week CorMedix (CRMD).
• Have look at Crenetics (CRNX) a high profile mid cap down 34.9% since the JPMorgan Conference and down 21.7% in one year.
• As you might expect the RSI index is the best indicator of stock performance up or down.g a bear market for small caps.

We are still not in a bear market for SMID caps as defined by a correction of 20% or more for the IWM and XBI. Moreover the economy is still resilient per Charman Powell. Many strategist predicted that small caps would outperform because politics would reward US small business. Moreover there  is plenty of money around from well heeled VCs who have an appetite for big ideas in healthcare and biotech. So keep trading.

SMID Life Science Trading List-Based on MOMENTUM-not a buy list.

Performance not included in chart. Look at RSI.

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