Speculative Small Cap Biotech Stocks are in a Bear Market

• It’s time to trade beaten-up small cap biotech stocks.
• Technicals still rule because valuations are high.
• Large cap biopharmaceuticals outperform but not with ETFs.

After a wild whipsaw week, Friday gave us the green screen. This has happened in 2021 but small cap speculative biotech stocks eventually traded down. And with a big earnings week ahead the narrative should swing away from the endless Fed speak and interest rate analysis. Here are our prime indicators of speculative biotech over one month thru 1/28:

• ARK Genomic Revolution (ARKG) down 24.64% to $45.94. 52 week high was $115.
• SPDR S&P Biotech (XBI) down 21.76% to $88.58. 52 week high was  $174.79.
• iShares Russell 2000 (IWM) down 12.5% to $195.25. 52week high was 244,46.
• The iShares Biotechnology ETF (IBB) is down 14.7% over one month and does not reflect large cap strength.

Clearly, this is an oversold condition but to rally, we need to see strength in the Nasdaq (QQQ) and small caps (IWM). The market is in a risk-averse trend in January favoring large caps with earnings growth or dividends. Our favorite large cap picks have done well this week and over one month; ABBV up 2.63%, BMY up 4.11%, VRTX up 9.5%. Also, we continue to hold for the long term other large cap Biopharmaceutical stocks: MRK, REGN, RHHBY, PFE. Earnings will be reported this week for many large caps; ABBV, BIIB, BMY, GILD, REGN and SNY. Guidance will set the pace for 2022.

Many of our recent small and mid-cap trades in January have been at a loss: BMRN (sold,) CCXI, CRSP, EVH, and XBI. For a broad rally we also need to see mid-caps rally because most have revenue growth and approved products. Two major product segments are in this category gene therapy and mRNA vaccines. Both categories are down over one year.

For the month of January, the S&P 500 (SPY) is down 6.43% but even the S&P 500 VALUE  ETF (IVE) is down 2.6%. The best diversification position would be to hold more energy for example with the SPDR Select Energy (XLE) up 18.31% in January.

Here are several small cap spec biotech stocks w own at a loss that had strength early in 2021: CYRX, CCXI, CMRX, GKOS, MGTX.  So before adding new positions to speculative biotech stocks we need to see momentum building early this week in many of these stocks. A major issue has been the avalanche of biotech IPOs adding to a large number of small cap life science stocks that are still unknown to investors.

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