Group Overview:

There was certainly a lot of excitement in the space this week, with the big news obviously the CELG news being acquired by BMY. When these type of transactions take place there is often a frenzy like feeling in the group (TSRO fetched a nice premium in December). I would say overall to curb the enthusiasm, and take a stock by stock view. After all during a wild week on Wall Street, the XLV rose just .8%, just the eight best showing among the major S&P sectors. JNJ remains a weight on the ETF as the fund rose fractionally this week and has now finished very taut the last 3 weeks, all CLOSING within just of .82 each other (JNJ narrowly avoided its first 5 week losing streak since last summer in the process). That all being said below is a seasonality view of the XLV, and although the next 3 months tend to be mediocre, but those with a longer term view may be starting to assemble a nice portfolio with the April-July periods showing solid demeanor.

Biotech Battleground:

Now of course this group is very diverse, and this week should be news aplenty with the JPM healthcare conference beginning Monday in San Francisco. The IBB is demonstrating some decent relative strength the last couple weeks as it was higher by 4.4 and 8.1% compared to the XLV rising 3.1 and .8% respectively the weeks ending 12/28 and 1/4. This is an extremely short time frame (IBB is still 17% off most recent 52 week highs and the XLV sits 11% off its), but one to keep an eye on. Below is the chart of the IBB and it is higher 6 of the last 7 sessions, and Friday disregarded an ominous filled in black candlestick from the day before. The ETF is retesting both a bearish descending triangle breakdown and its downward sloping 50 day SMA. Will it be too much to overcome? Only time will tell, but that is a daunting cluster of evidence. I did find it interesting that the “old four horseman” are currently the 4 largest components in the ETF, with all representing more than 8%. The more things change, the more they remain the same.

Examples:

Amid all the volatile trade in the last quarter of 2018, especially last December, it would be wise to search for names that traded in a relatively stable fashion. This type of behavior could be viewed as institutions taking a stand and accumulating a position. An example of this may be seen in the chart below of CTMX and how it was profiled in our Healthcare Report on 12/31. This name did experience a hefty move doubling the weeks ending between 8/25/17-3/9/18 (that run ended with an impressive 10 week winning streak that rose 50%), but since that top cratered and now sits 55% off most recent 52 week highs. To be frank I am completely a PRICE action player, but I thought it was odd that there has been basically no news on this stock as it rounds out a potential bottom. It is higher 5 of the last 6 weeks, and this week showed good follow through advancing 5.7% after the prior week jumped 11.7% (next week will be looking for just its second 3 week winning streak in the last 11 months). This name should be treated as speculation, and its charts complexion is starting off 2019 on the right foot.

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