Biotech Stocks Get Healthy Again

After peaking in February 2021, biotech stocks did not participate as a group once the market turned after 2022. This summer appears to have changed that.

It’s not easy to deal with biotech stocks individually. The development stage pool is filled with stocks that have no dividends and often no revenue, other than inconsistent milestone payments.

This happens to be a majority member of the Medical-Biomed/Biotech group of approximately 800 stocks. But the SPDR S&P Biotech ETF (XBI) can give you exposure without worrying about a clinical trial or a single drug’s serious side effects blasting your portfolio into oblivion.

Conquering the 200-day line begins the journey

XBI struggled below the 200-day line for most of the year. Even when the follow-up day began on April 22, XBI still had 17% to go to reclaim the long-term trend line.

Our strategy was patience. After rising off its bottom, XBI joined SwingTrader on August 13 as it reclaimed its 200-day line. (1). As we usually do, we began to reduce position strength in what turned out to be a bearish reversal day (2). We exited the rest the next day as we fell back below the entry price (3). But the trade still ended with gains of more than 0.5%. how? The previous sale generated profits and helped keep the trade green rather than taking a loss.

A few weeks later, we gave the biotech ETF another shot when it broke through the resistance level (4). This time, we cut back a little early as we failed to make an initial lead (5). With so many positions that were working well, it was difficult to stick with one that wasn’t. However, we adjusted the mode the next day and added the trimmed mode back in immediately as the power returned (6). Unfortunately, XBI moved sideways again and we ended up coming out with a small loss on the trade (7). If positions are not executed, exits usually come quickly to continue moving where there is relative strength.

Sometimes, it is not easy to buy back positions. When biotech stocks started moving again (8)We were already on the sidelines. Unfortunately, this was when XBI really came into play.

Search for new opportunities in biotechnology stocks

Just because you miss a round does not mean you should cancel any future trades. The bullish reversal at the 10-day line has given us another opportunity in biotech stocks (9). This time, instead of increasing profits, we relied on bringing XBI into a high volume position the next day (10).

It was one of the few areas that was working after the October 10th sell-off but we didn’t want to press our luck. We’re starting to trim on the downside (11) It exited after XBI cleared the lows of the previous few days in the following week (12). Now with the strength to end the week on Friday, it’s worth trying again.

More details about past trades are available to SwingTrader subscribers and professionals. Free trials are available. Follow Nielsen on X, formerly known as Twitter, at @IBD_JNielsen.

You may also like:

Why This IBD Tool Simplifies the Process of Finding the Best Stocks

Learn how to time the market with IBD’s ETF strategy

Getting the right mindset puts you on the right side of any market

Are you looking for the next stock market winner? Start with these three steps