Good News/Bad News:
We can all try and look for clues to how a financial instrument might perform, but PRICE is the ultimate decider. You name the indicator, it reacts to PRICE, so it makes sense to follow it ferociously. But we can look for some things to help us along, and one of those things is seasonality. Below is how the XLV acts during specific months the last few years. Notice during July the XLV has its best month, higher 100% of the time from where it opened the month. Of course markets are forward looking and perhaps that still explains the weakness in the overall group, as it still remains the worst major S&P sector out of the 11, albeit is still up more than 8% YTD. Notice the weakest 3 months are coming upon us with the August-October period. It does not mean certain names will not succeed, but perhaps one can buy generals in the space and hedge with a short XLV.
All Drugs Are Not Created Equal?
Chatter about the “old, big four horsemen” in biotech is rarely talked about for good reason. BIIB is lower by 40% from most recent 52 week highs, and AMGN and GILD rest 14 and 15% off their most recent peaks (CELG of course is being bought by BMY). Looking at some of the large cap pharma plays there is also some disparity. Here we have the ratio chart comparing MRK to LLY. MRK is higher by 11% YTD, while LLY is LOWER by 2% so far in 2019. MRK is comfortably above both its 50 and 200 day SMAs, while the opposite is true for LLY.
We are always capitalizing the word CLOSE, as in closing prices. They are imperative on both the long and short entries. Trying to “front run” a pivot point is just asking for trouble. Many time a name will trade above or below a suggested entry, but if a CLOSE in the desired direction is not achieved one should not take the trade. Below is a good example of this with FGEN and how it was presented in our 6/27 Healthcare Report. The upside gap fill was hit from the 5/9 session and we were looking for follow through to the downside which never occurred. Have a disciplined game plan and your chances of success rise.