Here’s How Biotech Beat the Bears

I love to see buyers take the day off in the middle of a bull run.

Instead of the rising tide lifting every stock on the market, a dash of frantic selling offers us a glimpse at the strongest sectors that are likely to continue to lead the market higher.

That’s exactly what happened yesterday as trade war jitters helped kick-start the selling. The Dow Jones Industrial Average was down a cool 400 points shortly after the morning bell as vulnerable multinational corporations took a hit. It finished down 287 points after enjoying a midday recovery.

While the Dow was worst performer among the major averages, strong momentum stocks also took a hit — including some speculative favorites in the tech space. The red-hot Nasdaq dropped more than 1% in the morning, yet finished the day lower by just about 0.3%.

But if we dig below the bearish headlines, we can clearly see some impressive winners emerging from the sea of red.

Health care stocks held their own during yesterday’s selloff. The sector received a friendly nudge from biotech stocks as some of the industry’s flagship names posted impressive gains.

Bullish developments regarding a high-profile experimental gene therapy didn’t hurt the industry’s cause on a weak day for stocks. Sarepta Therapeutics Inc. (NASDAQ:SRPT) shares spiked nearly 60% after announcing positive results from an early gene therapy treatment. Wall Street was so pleased with the results that even Sarepta competitor Solid Biosciences (NASDAQ:SLDB) ripped higher following the news.

Last week, I showed you how the bigger biotechs were starting to make a move. The iShares Nasdaq Biotechnology ETF (NASDAQ:IBB) had quietly consolidated just above its 2018 lows and appeared to finally find some buyers. The market’s flagship biotech ETF finally jumped to new two-month highs last week.

Strong moves from some of the biggest biotechs on the market fueled the gains. Gilead Sciences Inc. (NASDAQ:GILD) leaped back from the dead and closing its May earnings gap. The stock continued its comeback move yesterday, posting a gain of almost 3%. Spark Therapeutics Inc. (NASDAQ:ONCE) was another impressive mover in a red market. The stock jumped more than 8% on the day to break out to new 2018 highs.

Biotech Heats up

Comeback moves throughout biotech land have produced plenty of profitable trading opportunities lately.

We’ve been keeping close tabs on the smaller SPDR S&P Biotech ETF (NYSE:XBI) as it rallied off its April lows to post new all-time highs. Smaller biotechs have remained the clear winners in this space as many of these speculative names have posted some incredible gains over the past couple weeks.

I noted last week that with IBB back above its 200-day moving average for the first time since late March and risk appetite for biotechs growing by the day, we’re lining up more opportunities to book gains from some of these fast-moving stocks.

You already have a couple of strong names in the portfolio. We cashed out half of our Ocular Therapeutix Inc. (NASDAQ:OCUL) position for double-digit gains last week. Meanwhile, Bluebird Bio Inc. (NASDAQ:BLUE) has been a little ornery since we grabbed shares last week. We’ll need this trade to level off as it sits near critical support.

If the bulls continue to rotate into biotech, both of these could turn into monster trades.

Sincerely,

Greg Guenthner

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Greg Guenthner

Greg Guenthner, CMT, is the editor of Opening Bell Fortunes and Seven Figure Signals. He has been with Agora Financial/Seven Figure Publishing since 2005. In 2019, the average position in Greg’s Sunrise Fortunes portfolio outperformed the S&P 500 by 1.65x.

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