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Biotechs Weaken On Profit Taking

By Kurt Osterberg · On July 25, 2017

Biotechs Weaken on Profit Taking Despite Bullish Underpinnings

Amgen and Biogen Beat But Guidance Offers Little Support

Look For Possible Sector Shift And More Balance For 2017

The nine month biotech rally hit a bit of a sell-off today after leading all sectors of the market through the first half of 2017. The healthcare sector was also the laggard today as money shifted to basic materials, energy and cyclicals.

The leading ETF the equal weighted SPDR S&P Biotech (XBI) was down 1.39% and the large cap weighted iShares Nasdaq Biotechnology Index (IBB) was down 1.08%.

The Healthcare SPDR ETF (XLV) was down 0.72% after hitting an all time high of $81.21 at the opening. The XLV is up 16.6% YTD.

Several biotech pundits and analysts on CNBC are calling for further gains in the sector but we would like to see a pullback before adding positions.We are a long way off the all-time 2015 IBB highs of $400 but midsummer trading can be choppy without support from the big guns of specialized life science funds. The current uptrend tracks biotech bear market lows hit in Q4 (November 3) of 2016.

Technicals look good but the IBB is at the top end of the upward channel. Need a catalyst like a deal, clinical data or earnings.

Material stocks involved in copper and steel were leaders and the XLB is up 12.27% despite the lack of a government stimulus or tax reform plan. Energy and Financial stocks also caught bids. Caterpillar Inc.(CAT) was a catalyst up 5.88% to $114.54 and a new high on strong Q2 earnings. Full year EPS guidance was raised from $3.75 to $5.00.

There was weakness today across the sector so maybe it is better to wait through the earnings cycle to assess market trends. Most large cap biopharmas were in the red and some mid-caps took 3%+ hits. ALNY, INCY and VRTX were big losers.

Amgen (AMGN) is down about 2.65% after hours despite a “beat” on Q2 financial results but revenue guidance ($22.5-23B) was cautious.Revenues increased 2% to $5.8B and GAAP EPS increased 18% to $2.91 driven by higher operating margins. Repatha sales were $83M.The Company generated $2.1B of fresh cash flow in Q2; the dividend was $1.15 per share.