Biotech sector is still No. 1 in Dorsey Wright’s relative-strength sector rankings
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Biotech sector’s trend of outperformance remains intact
Biotechnology stocks took a
big hit this week amid outrage over surge-pricing practices, but one
widely-followed technical analyst said it’s still too early to bet
against the sector.
The SPDR S&P Biotech exchange traded fund
XBI, -1.19%
has tumbled 7.7% this week
through Wednesday, as Presidential Candidate Hillary Clinton unveiled a
plan to counter high drug prices, in response to a New York Times article about a company that raised the price of a drug to $750 from $13.50 overnight. The iShares Nasdaq Biotechnology ETF
IBB, -1.20%
has shed 8.2% amid a four-session losing streak.
That
selloff may have spooked some investors in the high-flying sector—the
S&P Biotech ETF is still up 18% year to date—just as the broader
market struggles to regain its bullish composure—the S&P 500 index
SPX, -1.01%
is down 5.8% this year.
But
Thomas Dorsey, co-founder of Dorsey Wright & Associates, a
subsidiary of Nasdaq, said the recent volatility in the biotech sector
was still just noise, as it is still No. 1 in Dorsey Wright’s
relative-strength sector rankings. And as the chart above shows, the
biotech sector’s uptrend relative to the S&P 500 remains firmly in
place.
“Everything still suggests [the biotech sector] still has the strength, not just in itself, but on a relative basis,” he said.
Dorsey
Wright has a history of outperforming the broader market by simply
betting on relative-strength leaders, rather than by trying to find
bargains by calculating historical valuations or profit and sales
trends.
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Thomas Dorsey (black T-shirt) meets with interns and junior staff members in 2014.
Since inception on March 6, 2014, the First Trust Dorsey Wright Focus 5 ETF
FV, -1.17%
which holds the five First
Trust sector-and industry-tracking ETFs with the highest
relative-strength rankings—it’s re-evaluated every week—has climbed 17%
while the SPDR S&P 500 ETF
SPY, -1.04%
has edged up 3.3%. The Focus 5 ETF has included the biotech sector
FBT, -1.23%
since inception.
The other sectors held by the Focus 5 ETF in order of ranking, are health care
FXH, -1.53%
Internet
FDN, -1.27%
consumer staples
FXG, -0.60%
and consumer discretionary
FXD, -1.03%
Dorsey said Clinton’s
plan wouldn’t change his mind about biotech stocks, as politicians and
lawmakers tend to have an agenda when they announce policy initiatives.
Read more about how drug-pricing policy isn’t likely to change soon.
“Do you know what doesn’t have an agenda? A relative strength chart,” Dorsey said.
Druckenmiller anticipates oil prices -- which
plunged about 50 percent since June -- will rise by next year after
companies slowed production and exploration.
Duquesne Family Office sold its retail and airline stocks, which
benefit from lower oil prices, and has bought equities that benefit as
energy prices climb, such as LyondellBasell Industries NV. The world’s
biggest maker of polypropylene plastic rose as much as 3.1 percent today
to $96.18, the highest price since October. He’s also buying crude
futures.
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