However, the recent moves in biotechs have been anything but steady. This started with the exponential move higher starting around July 2014 and then the subsequent selloff. Here are some relative performance numbers since 7/17/2014:
After over doubling from July 2014 to July 2015, the biotech pullback has brought the performance nearly in line.
Where does this leave us today? While this recent drawdown has been significant, it was coming off such a rapid appreciation. So which move was ‘correct’ – the rapid appreciation or the rapid selloff? Based on this longer-term chart, it seems as if biotechs are more inline – or potentially under – the longer term slow trend higher. Therefore, while it seems a correction may have been due, the magnitude of said correction may also be a bit overdone.
That then begs the question of are biotechs poised to continue the longer-term trend higher? Alternatively, are we going to enter a state more similar to the 2002-2007 period where relative performance trends more sideways?
While trying to break higher versus the S&P 1500 two separate times since its February 8 low, ultimately the Biotech index is still underperforming said index by roughly 2.5% since that date through March 18. Will the third attempt to break higher be the charm, or will it be three strikes and then a continued relative move lower? Alternatively, is there a third option where we enter a more sideways chopping relative performance period? The remainder of the first quarter leading into the second quarter may be an interesting and revealing time for the industry.
Clayton Fresk, CFA is a portfolio management analyst at Georgia-based Stadion Money Management, a participant in the ETF Strategist Channel. The above constitutes the personal, professional opinion of Clayton Fresk, CFA, and does not necessarily reflect the views of Stadion Money Management LLC. References to specific securities or market indexes are not intended as specific investment advice.
Founded in 1993, Stadion Money Management is a privately owned money management firm based near Athens, Georgia. Via its unique approach and suite of nontraditional strategies with a defensive bias, Stadion seeks to help investors—through advisors or retirement plans—protect and grow their “serious money.” Contact Stadion at 800-222-7636 or www.stadionmoney.com.