RIP, Biotech Bull...

Looks like it’s over…

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

And stocks are in mourning. They began the week in a river of red as the Nasdaq led the major averages lower. MarketWatch is calling it the “Death Cross Grand Slam”. Fitting.

The Nasdaq Composite joined the S&P 500 and the Dow Jones Industrial Average in stock market purgatory yesterday after flashing a dreaded death cross (that’s when the 50-day moving average crosses below the 200-day moving average). As you can see, the biotech swoon ain’t the only painful breakdown out there right now…

The S&P Biotech SPDR and the Biotech iShares began cratering less than a week ago with a shared 4% rout to get the ball rolling. And after finally realizing that stocks can’t go straight up forever, biotech investors have now decided to toss some gasoline on the fire and torch the entire sector.

By the time the smoke cleared Monday afternoon, the Biotech iShares had dropped more than 6%. That’s its worst performance in more than four years, in case you’re keeping track.

It’s gains for the year? Poof. Gone in one fell swoop. You know what they say—stocks take the stairs up… and the elevator down.

Bye Bye, Biotech

“The downdraft in biotech stocks comes fresh on the heels of the sector’s worst weekly performance in seven years and places the biotech fund, which hit its peak in mid July, squarely in bear-market territory, which is a decline of at least 20% from a recent peak,” MarketWatch explains. “The Monday slump saw the IBB erase its gains for 2015 and put it squarely in negative territory, down 4.2% year-to-date.”

Well there you have it…

Listen, 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. Not all of these companies are junk. In fact, lots of them are making plenty of money these days. There are plenty of bullish narratives and fundamental reasons investors can list if they really want to hang on for dear life here…

But none of that matters right now. Sellers are in control. When it comes to the markets, that’s all you need to know. Now’s not the time to adding speculative positions—especially not in biotechs.

Sure, we could easily see an oversold bounce sometime over the next couple of weeks. But this is the blow-off phase of an epic rally. We need to see some serious mean reversion before we can even think about sticking our little toe in the water.

RIP, biotech bull.

Sincerely,

Greg Guenthner
for The Daily Reckoning

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