Biotechs Soar And Find Relief After Trump Big Speech

Look to MId-Caps for Momentum

Large Caps are Value Stocks

Gene Editing and Gene Therapy Provides New Theme

Biotechs soared Friday immediately after Trump's much-anticipated new drug plan speech which was going to address high drug prices and potentially bring more government intervention. The big concern was direct negotiation by HHS for Medicare drug prices but that did not happen. The Trump speech sounded ominous but lacked detailed action plans for the government that could be implemented near term. Alex Azar the new HHS secretary and former Lilly Executive is scheduled to elaborate on the proposals that initially focused on “squeezing” PBMs like Express Scripts (ESRX) and CVS. Nonetheless, tough talk along with geopolitics is likely to disrupt markets sometime in the future.

Biotech stocks and widely followed ETFs had one of their best days of the year on good volume. Many analysts felt short covering was a major factor in the rally but it brought back ETFs like the XBI up 2.96% above the SMA 50 level. Similarly, the IBB was up 2.75% Friday's action (5/11) augers well for a continuing rally for at least another week but not to new highs without news or deal catalysts. But we have defended the sell-off toward 2018 lows.

On 5/4 we suggested that the Mid-Caps were the sweet spot of the market because of M&A potential, clinical breakthrough news, and revenue growth. AveXis (AVXS) is a good example purchased recently by Novartis (NVS) for $8B. Here is our updated list of well-known Mid-Caps with performance over the past 5 days and YTD. We are developing a portfolio model based on technicals with stocks that have been pre-screened for pipelines and financial metrics.

If you look at these volatile names you can appreciate why the FBT and XBI outperform the market in a bull market in despite recent weakness that tested 2018 lows.