Call It a (Biotech) Comeback!
Dear Wall Street Daily Reader,
Sorry, LL Cool J. But I’m calling this a comeback!
On the heels of the recent historic decision by the FDA to approve the first drug in 20 years to treat Alzheimer’s disease, forget about Biogen’s (BIIB) stock rally… all biotech stocks rallied big!
Take a look:
The thing is, this isn’t some one-off, short-lived celebration.
On the contrary, I’m convinced this is the start of a rally with serious staying power.
You’ll recall, I recently told you we were about to enter a historically strong performance season for biotechs.
For five years in a row, from the end of Spring to the end of Summer, biotech stocks have rallied by double digits.
In other words, the old market adage to “Sell in May and Go Away” should never be applied to biotechs. At least according to yours truly.
Up until yesterday, that seasonal strength had failed to materialize, making me look like a bullish blowhard.
Case in point: The major biotech indexes were down several percentage points in May.
What a difference a day makes, though.
After yesterday’s move, the major biotech indexes are now up nearly 5% from the end of May.
As you’ll also note, yesterday’s rally was more pronounced for smaller-cap biotech stocks, as represented by the SPDR S&P Biotech ETF (XBI), which is something I also told you to expect.
What’s going on? Put simply…
When it comes to investing, we know a single event or data point can spark a change in sentiment and market direction.
That’s why so many investors obsess over individual events or data points, like Fed meetings and jobs numbers, to name two quick examples.
Well, it’s no different in biotech.
Single FDA decisions or clinical trial data points can change investor sentiment — and in turn, change the direction for the entire sector. And that’s precisely what happened yesterday.
For months now, investors have been overly worried about drug price reform and lower odds for drug approvals under new leadership in the White House and the FDA.
But with a single approval yesterday, those fears have been erased, letting the truly bullish biotech fundamentals that I mentioned in April come back into focus and influence price action.
And those fundamentals, my friends, are ones with serious staying power. Like strong clinical data and record levels of venture capital funding, which make yesterday’s biotech rally the start of a longer-term trend we can profit from.
If you don’t own any biotech stocks right now, you better hurry up before it’s too late!
Ahead of the tape,
Editor and Founder, Trend Trader Daily