Biotech — Inflection point, or more pain?


Hi all, wondering what you guys think of biotech. In this post, I will specifically be referring to $xbi.

Biotech as an industry is incredibly hated right now, small and large caps alike. While I appreciate the fact that the current macro environment is less than favourable to say the least, there are some things pointing towards the possibility that a bottom is being approached.

– largest underperformance relative to SPY since inception

– Its looking increasingly possible that the index is about to have two consecutive red years for the first time since inception.

– valuations at all time lows, yet big pharma has record amounts of cash on hand. M&A could be a driving factor this year.

– XBI currently is sitting at a 55% short interest, compared to 7% for SPY. *IF* sentiment changes, the unwind will be violent.

Again, rates are rising and many of these companies run on debt, which makes them less enticing to investors. However, this may change once there is more certainty regarding monetary policy outlook closer to the summer. Thoughts? The sector is looking so damn oversold it is hard to not start scaling in for me…


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