Last June, the US biotech sector reached an oversold/overbearish extreme that marked the end of a vicious cyclical bear market. Between August 2021 and June 2022, many stocks across the biotech sector were cut in half, or worse. Since then, the biotech sector has experienced a strong rally and in the process has significantly outperformed the S&P 500. In this article, we will discuss the technical chart evidence that leads us to believe that 2023 could be a year marked by the prevalence of Stage 2 uptrends across the biotech sector. Simply put, this could be the year in which a lot of money is made by well positioned investors. We will discuss several pharma and biotech stocks that illustrate the relative strength of the sector and the potential for Stage 1 bottoms to powerfully transition to Stage 2 uptrends (stage analysis).
The biotech sector as represented by the IBB exchange-traded fund is consolidating slightly above an important support/resistance level at $135. This consolidation is taking place ahead of the strongest seasonal stretch of the year for the biotech sector historically; from April through the end of July, the biotech sector has averaged a 6.6% return over the last twenty years.
One potential explanation for this summer seasonal strength in the biotech sector is the publication of clinical study data. These are traditionally released in July and August, and besides introducing new products to the market, they can generate large amounts of highly effective PR for the biotech and pharma industries.
Another period of notable seasonal strength for biotech begins at the end of October and extends into January of the following year.
Meanwhile, many leading pharma/biotech stocks are breaking out to multi-year year highs. And in some cases, such as Regeneron (Nasdaq:REGN), all-time highs.
The Regeneron weekly chart typifies a strong bull market uptrend and last week's breakout to new all-time highs comes after an extended high & tight consolidation pattern.
MedicalGold highlighted Medicenna Therapeutics (Nasdaq:MDNA) as one of the biotech tax-loss opportunities in the final trading week of 2022.
MDNA has risen ~100% since December 28th, 2022.
MDNA is consolidating just below important resistance at $.80 per share. A further consolidation between $.60 and $.80 followed by a decisive breakout above $.80 on heavy volume would be an ideal scenario for bullish investors.
While the future path of price action is never certain, what we can deduce from the above chart is that MDNA shares completed a Stage 4 downtrend in November of last year and then proceeded to begin a Stage 1 bottoming process.
The question we now need to answer is whether the Stage 2 uptrend has begun. The evidence is mounting in the affirmative.
Many of the biotech IPOs of 2020/2021 have shown strong evidence that they have completed the Stage 1 bottoming processes in the last several months. This means that Stage 2 uptrends, where the vast majority of money is made, will be in the cards at some point in 2023.
One of the biggest biotech IPO disasters of the entire 2020-2022 period, Mind Medicine (Nasdaq:MNMD), has formed one of the most interesting chart setups of any stock in the small cap biotech space.
After experiencing an extended period of distribution (high volume down days) throughout 2022, MNMD has displayed a notable change of character thus far in 2023; the preponderance of accumulation days (green trading sessions on rising volume) relative to distribution days (red days on rising volume) offers a distinct bullish shift in the trading of the stock. Buying pressure is building as MNMD consolidates just below the breakout level ~$3.70.
With ~8% short interest and more than its entire market cap held in cash in its treasury ($154.5 million as of 9/30/2022 financials), MNMD is poised to trigger a powerful short squeeze once a breakout above the $3.70 resistance level is confirmed. Moreover, the open gap at $6.12 offers an enticing upside target for any future squeeze.
2023 also stands to be a critical year for MindMed due to the commencement of a Phase 2b study evaluating MM-120 (MNMD’s proprietary, pharmaceutically optimized form of LSD) for generalized anxiety disorder (GAD), with topline results expected in late 2023.
Considering the prevalence of anxiety in today’s society, and the significant side-effects of current treatments such as benzodiazepines, the potential market opportunity for MM-120 is nothing short of enormous. MindMed released data from their pilot Phase 2a study in September 2022, in which investigators observed significant reductions in anxiety scores up to 16 weeks after treatment.
These charts help to illustrate that the biotech sector is abundant in attractive chart setups at a time when valuations are more attractive than they've been in at least seven years. You can count on MedicalGold to keep you apprised of the latest developments across the biotech sector, including actionable chart setups.
Author owns MNMD shares at the time of publishing and may choose to buy or sell at any time without notice.
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.SEDAR.com for important risk disclosures. It’s your money and your responsibility.