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Posted September 22, 2022

Ray Blanco

By Ray Blanco

Biotech Bottoms, Looks to Turn Things Around

After being stuck in a historic biotech slump, we’re now seeing signs pointing toward a turnaround that makes right now one of the best times ever to buy quality biotech names.

Back during the biotech buzz of excitement led by COVID-19-related names, these companies peaked well ahead of the general market when they set all-time highs in February 2021.

But biotechs also led the decline eight months ahead of the major indexes, losing more than 64% of their value by May of this year.

After bottoming in May, the small cap-rich S&P Biotechnology Select Industry Index (SPSIBI) bounced off a level that served as support for the sector during the COVID-19 sell-off in early 2020 and again in the biotech swoon that took place in 2018.

In both cases, biotech came back with a roar.

I’ve tracked the ups and downs in biotech going back 30 years, and the current biotech bear is the worst I’ve ever seen over the period.

But if history is any guide, buying biotech now should produce big gains in the months ahead.

Getting Ahead of a Biotech Breakout

Despite the share price declines, biotechnology companies have performed well this year.

Last year, the FDA granted 50 approvals for novel drugs, a near record that includes many first-in-class therapies. So far this year, the regulator has approved 16 more.

Fast forward to right now, the drug manufacturer sector widely outperformed the broad market today.

Take a look for yourself:

IMG 1

And there’s great reason to believe we’ve already seen the bottom in biotech.

Looking at the S&P Biotechnology Select Industry Index (SPSIBI), we can see where the biotech sector bounced off of key support levels in the past:

IMG 2

This year we saw that same level tested twice, once with biotechs bouncing back in May, and again after a general market sell-off in June.

We’re getting a bit of consolidation right now, but biotech stocks look like they have plenty of room to run.

I’ll be watching for the biotech sector to retake its midpoint from previous highs. Price action like that will give us more clarity if we’re moving back into a biotech bull market.

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