Don't Bet Against the Biotech Bears

Biotech took another tumble yesterday.

The sector is now down 33% from its 2015 highs. And it ain’t over yet…

Today I’m going to talk you out any hare-brained scheme you might have picked up on TV to go bargain hunting in biotech.

So let’s get this biotech mess out of the way. I gave the sector its last rites back in September…

“The biotech bull looks like it’s finally breathed its last,” I said. “It’s ready to shove off for bliss eternal after one mother of a run.”

Technically, the Biotech iShares started breaking down earlier that summer. But after the death cross grand slam that torpedoed the major averages in August, it became apparent that most biotechs weren’t getting off the mat…

Now it’s time for the funeral. Biotech looks like it’s finally going to that great bull market in the sky. Some industry experts are guessing that fund managers badly want out of these risky names while they still can. Makes sense. The major averages have faded in 2016 but biotech’s fared much worse. The Biotech iShares are down more than 20% this month alone.

The pain is real…

Biotech's Busted

All those sweet, tasty gains from the raging biotech bull… Poof. Gone in one fell swoop. You know what they say—stocks take the stairs up… and the elevator down.

I’m not saying all these biotech stocks are headed to zero. I’m sure there are plenty of interesting companies in the biotech sector that are going to do a lot of good for the world one day. And I understand that some of these companies are even making good money these days. More power to ‘em.

But these facts don’t matter right now. Bullish narratives and fundamental reasons to buy take a back to seat to selling when the pressure is on…

Here’s all you need to know about biotech in one sentence: Sellers are in control. Now’s not the time to add speculative biotech positions in hopes that this is the bottom.

True, we could easily see an oversold bounce sometime over the next couple of days or weeks. But we’re now beyond the blow-off phase of an epic rally. You need to see some serious mean reversion before you can even think about sticking your toe back in the water.

Want more proof? Just feast your eyes on this long-term biotech chart:

Biotech Shares

The raging bull that lifted the Biotech iShares to gains north of 300% over the past four years has run its course. That perfect uptrend is kaput. And there’s a whole lotta potential downside there that could wreck a portfolio…

So if biotech is the new stock market leper, what the heck is the risk-averse investor buying these days? Only the most boring stocks on the market: utilities and consumer staples. That’s your shelter from the biotech fallout.

Sincerely,

Greg Guenthner
for The Daily Reckoning

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