Biotechnology Bear Market: Trends To Watch For A 2016 Q4 Rally

Bad News Continues to Feed Biotech Bears: Risk Remains Off

IBB is at $270 midway between BRexit bottom of $242 and recent top of $300

We have written about market trends (Biotech Bull Market Trends 9/26) in the past that offers clues to the future direction of life science stocks that have been in a downdraft recently hit by clinical trial failures (ALNY), an earnings miss (ILMN) and negative sentiment caused by drug pricing politics and specific issues like higher co-pays and pricing gimmicks like coupons. Today as we continue the 2016 biotech bear market that got started in a steady sell-off after the July 2015 “bubble” top and accelerated in January 2016 with a precipitous 30% drop. Many trends still look bearish despite the big rally from the Brexit Bottom in July 2016.

  1. Momentum is weak despite an active but volatile tape. However an encouraging sign is the big moves in selected stocks that are still up YTD and move on good clinical news.
  2. Technicals are a big concern. The IBB could not continue its upward trajectory as it moved to the $300 resistance level. The XBI is holding up better above support at $60 but the breakout at $67 failed.
  3. Large cap revenue growth is weaker than expected. Q3 earnings needs to provide support but bellwether CELG is down 16% YTD.
  4. Healthcare sector (XLV) remains weak due to the election politics of drug pricing. Now there is concern that the DEMs can take the House which could bring policy changes like Medicare pricing negotiations.
  5. M&A offers some support and deals are ongoing such as Cepheid (CPHD) and Medivation (MDVN).

Risk remains off except for traders. MACRO events for the overall market is also a risk with the FED possibly raising rates in December. Can we get a leg up with the seasonally strong Q4?

Disclosure: None

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