Last week I was in Beaver Creek, Colorado, speaking at The Oxford Club’s Private Wealth Seminar.
Now, being from Maryland - which is largely just above sea level - the change in elevation was a bit of an issue. Mostly, you didn’t notice it, except when ascending stairs... or drinking (one or two drinks is plenty in thin air).
Returning home, I was happy to be able to breathe normally again. To be at a lower elevation.
It’s funny though. While my fellow Oxford Club editors and I spent the past week among higher peaks, the markets came tumbling down from one...
From Peak to Trough
As I write this, U.S. stocks have continued to slip from where they ended last week.
China’s Shanghai Index fell 8.5% on Monday - its worst day since 2007 and its second-worst day ever. The government’s attempts to stave off further selling pressure are now crumbling after three weeks of relative calm.
The sharp decline added to the anxiety building here in the U.S.
It’s kind of hard to imagine, but the Dow Jones Industrial Average was above 18,100 last Monday, just over a week ago. Since then, it’s shed more than 3.5%, or 700 points.
For the year, the Dow is now down 2.25%. And it’s fallen slightly more than 5% from the all-time high it set on May 19.
From a technical perspective, the Dow tore through its 200-day moving average. The last time the index significantly did so was back in October 2014, during the collapse into third quarter earnings.
At the same time, the Dow’s 50-day moving average has slipped below its 100-day moving average. The last time that happened was in October 2013.
We’re now at the lowest point we’ve been since February.
On Monday, the biggest weights on the Dow were Apple (Nasdaq: AAPL),Chevron (NYSE: CVX), Nike (NYSE: NKE) and Boeing (NYSE: BA). Financials likeAmerican Express (NYSE: AXP), Visa (NYSE: V), JPMorgan Chase (NYSE: JPM) and Goldman Sachs (NYSE: GS) also weighed on the index.
Each of these were down 1.4% to 2%.
The big bad number of 18,000 has haunted the Dow since the index crossed over it in December 2014. Since then, the Dow has gone above 18,000 every single month, except for January, when it stalled out at 17,951.
So, in seven of the last eight months, the blue chip index has plowed higher, above the 18,000 level. But it has finished a month above that level only twice... closing at 18,132.70 in February and 18,010.68 in May.
So, where are the opportunities? What doesn’t have exposure to any possible ongoing drama in Greece or the collapse of Chinese markets?
Sticking to Higher Ground
The strongest-performing sector in the markets this year has been biotechs.
For months, I’ve been advising that investors who want security should stay with strength. And that’s been healthcare... biotechs... and some technology stocks.
Because, year-to-date, nothing comes even close to matching the performance of biotechs. (Don’t be fooled by the lack of media coverage, as Marc advised last week.)
The iShares Nasdaq Biotechnology ETF (Nasdaq: IBB) is up over 20% year-to-date. The ARCA NYSE Biotechnology Index (NYSE: ^BTK) is up about the same.
And this is despite the fact that the ETF is down more than 7% since July 20 (last Monday). During the same stretch, the index is down 6.7%. It was a quick and decisive bleed-out, but both are right around their 50-day moving averages.
In comparison, the Dow is below its 200-day and the S&P 500 is approaching its 200-day moving average. The Nasdaq, meanwhile, is sliding toward its 100-day.
So, we’ve had a messy week. That’s for sure. But it’s not the end of the world. And there are some prime companies in the biotech sector trading at a much better price than a week ago.
Also worth considering? The biotech sector is seeing record merger and acquisition (M&A) activity this year. More than $221 billion has been spent so far.
And we saw another deal this week as Teva Pharmaceuticals (Nasdaq: TEVA) abandoned its bid for Mylan (Nasdaq: MYL). Instead, it purchased Allergan’s(NYSE: AGN) generic pharmaceutical arm for $40.5 billion. (You may remember, Allergan itself was purchased by Actavis in November for $66 billion, with Actavis rebranding itself as Allergan.)
Teva gets generics to boost its revenue. Allergan gets to focus on its brands like Botox.
On Monday, as Teva jumped more than 14% on the Allergan deal (with Allergan up as well), AbbVie (NYSE: ABBV) and Amgen (Nasdaq: AMGN) both popped as well. So did Perrigo (NYSE: PRGO), the company that was on the other side of Teva’s bid for Mylan.
Now Allergan is flush with cash, with a lot of Wall Street speculators thinking it’s going to go hunting for its own smaller fish to gobble up.
The takeaway here? If you’re nervous in our current market climate, looking for a place to invest that’s still above sea level, biotechs remain an area of strength.
by Matthew Carr
Source: http://www.investmentu.com
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