The biotech sector is now deep into its third year of one of the most severe bear markets in its history. This downturn is the most significant we've seen in over twenty years of investing in the sector, surpassing both the 2008-2009 Global Financial Crisis and the 2015-2016 sector downturn in both duration and the magnitude of declines.
It is important to note that, despite all the gloom and doom, there have been no substantial changes to the fundamentals surrounding the biotech industry. In many ways, the outlook is better than ever. Notably, the implementation of AI/ML at multiple points along the healthcare value chain, from drug discovery, through GMP manufacturing, and to the patient's bedside, will drive down the cost of innovation and provide us with the next generation of healthcare tools to eradicate many, if not all, diseases (we will likely see the first CRISPR therapy approved next year, which will be the harbinger of a new era of precision, personalized medicine). Advances in ML promise to accelerate drug discovery and development through computer-modeled simulations that predict molecular behavior, leading to effective drug design and delivery.
There are other key fundamental factors that stand to benefit the biotech sector as we enter 2024:
The biotech sector tends to exhibit cyclical patterns and one can expect that after a 3-year bear market the tides will turn and the long term secular bull market will reassert itself.
At MedicalGold, we believe that a major bear market bottom will be put in place before year end. In fact, there is a chance that the bottom has already been put in place.
Since 2006, November has been the best month of the year for the biotech sector with an average monthly gain of 4.0%.
The XBI is deeply oversold and has begun to display bullish momentum divergences:
Looking at the entirety of the current setup including:
Simply put, I like the risk/reward proposition. The 2022 low near $62 offers a clear downside reference point that traders can use, roughly 8% below today’s closing price of $67.09.
The work included in this article is based on current events, technical charts, company news releases, and the author’s opinions. It may contain errors, and you shouldn’t make any investment decision based solely on what you read here. This publication contains forward-looking statements, including but not limited to comments regarding predictions and projections. Forward-looking statements address future events and conditions and therefore involve inherent risks and uncertainties. Actual results may differ materially from those currently anticipated in such statements. This publication is provided for informational and entertainment purposes only and is not a recommendation to buy or sell any security. Always thoroughly do your own due diligence and talk to a licensed investment adviser prior to making any investment decisions. Junior resource and biotechnology companies can easily lose 100% of their value so read company profiles on www.SEDARplus.ca for important risk disclosures. It’s your money and your responsibility.