Group Outlook:
Last week we focused on the medical devices ETF, but today lets look at the more brisk IBB. We will go into more depth of the IBB in the next paragraph, but measuring it up against the dodgy XLV, is like the analogy of risk on/risk off, akin to the EEM:SPX ratio. One who invests in the EEM has felt the danger this year, against the comfort of the somewhat stable SPX. Below we offer a technical take of the IBB presently and even after todays surge back above its 200 day SMA it is not out of the woods. Give it credit for quickly recouping its 200 day SMA, remember it is not a crime to lose it, but you must spoon the line and recapture in a swift pace. Last Friday registered a bullish morning star pattern, with that third session in the pattern being a doji, which often sees a weakening of the prior trend. Todays volume could have been a bit more energetic, but an old trader once told me that slow trade on a comeback is to be welcomed as market participants are unwilling to believe a turnaround could be underway. That will show itself in firmer trade once the conviction solidifies.
Smaller Cap Healthcare vs. More Mature:
When one wants to gauge the risk appetite in healthcare, investors can compare the performance of the smaller cap IBB ETF to the more mature, defensive XLV. The top four components in the IBB are the old “four horseman” of biotech being AMGN GILD BIIB and CELG, and together they compromise 33% of the fund. They are certainly not your nimble featherweights of biotech, but they are more conservative than the top four holdings in the XLV which consist of JNJ PFE UNH and MRK. Below the chart shows how IBB has underperformed the XLV. On a YTD basis the IBB has added 8% while the XLV rose by 12%, and over the last one year period the difference becomes more clear with the IBB up 2% which the XLV has jumped 13%. Perhaps that will start to change as the IBB recorded its strongest day of 2018 rising 4.2%, and more importantly CLOSING back above its 200 day SMA.
Examples:
As many names within the healthcare group try to work off technical damage from last week, like every other sector, some will recede more than others. The smaller cap names often display a higher degree of volatility, and that scenario could potentially offer investors nice rewards. Below is the chart of VKTX and how it was highlighted in our 10/12 Healthcare Report. The stock now trades 36% off most recent 52 week highs, even after today 8% plus gain. There were a couple things to like about the set up as it recorded a bullish inverted hammer candle, which could also be interpreted as a bullish piercing line candle. This occurred at a rising 50 day SMA after a pullback of 11 handles, nearly 50%, just 3 weeks prior. One can consider plays like this as lottery tickets, but technically this chart is doing just what it should.